Away daze: When holiday rentals don’t add up

With so many investors having bought property during COVID-19 in regional treechange and seachange areas, many are now working out what to do with their second home as the pandemic, hopefully, subsides, writes Sue Williams.

Many moved temporarily to their new homes as the cities went into lockdown and, as a result, enjoyed a comparatively free period in much less densely populated locations. Some enjoyed it so much, they’ve decided to stay in these times when it’s much easier to work from home.

“I was one of those,” says Luke Harris, CEO of The Property Mentors and co-author of the property investors’ guide Let’s Get Real. “I bought a place at Airlie Beach in the beautiful Whitsundays and shifted there from Melbourne.

“I’m lucky to be in the financial situation where I can enjoy a split between both places, with a Melbourne apartment to go to when I need to be in the city, and the place at the beach. I love the contrast, and the weather at Airlie!”

For others, it’s more of a choice between letting out their property as a regular residential tenancy – especially with the rental vacancy rate so low in many regional areas, and rents, as a result, so high – or putting it on a short stay platform.

Nathan Lewes, managing director of boutique investment firm AssetBase, says it’s a very common quandary. But he’s been advising his owners to let out their houses and apartments to long-term renters, often with longer leases to avoid the costs of re-advertising.

“Rents have really gone up in a lot of regional areas and, in a lot of instances, you’re looking at a rental return of five to 5.5 per cent, which is really, really good,” he says. “For short-term lets, however, you’re looking at cleaning costs and management costs and all the additional work that comes with it.

“If you have three or four properties you can balance that out by doing it full-time but otherwise you’ll be paying a pretty penny for the service. Also, you might find it hard during the winter months when it becomes less desirable for visitors to go there or when people do end up going back to work.”

Rents generally have been strong in most regional areas, rising by more than 50 per cent in some areas as tree changers on city wages move in and price locals out of the market. The NSW town of Crescent Head saw the biggest rent rise over the last year in the country of 54.5 per cent, according to the latest Domain Quarterly Rent Report for the final three months of 2021, with South Hedland in Western Australia seeing a 47 per cent jump.

“High rents and low vacancies in regional areas have been creating pressures for landlords to sign longer-term residential leases,” says Emily Sim, CEO of property management with the Ray White Group. “Tenants are having so much trouble finding a property, they want to hang on to it.

“So I would say it’s OK for investors to go into long-term tenancy agreements, having negotiated rental increases in advance. That can be a win-win for both sides. Short-stay can be interesting, but the risks are higher, there’s greater wear and tear on property and you still have to pay tax on proceeds.”

Also, if you do intend to stay in your property yourself, then you won’t be able to claim as much in tax breaks and expenses, advises Luke Harris, and you might be missing out on the most lucrative income at the most popular times. “It might be wiser to just stay in a hotel when you want to go there,” he says.

This article first appeared in Prestige Domain in the Australian Financial Review.