With the current apartment oversupply, many Melbourne investors are struggling to find tenants. A short-term rental strategy could breathe new life into this market.

Melbourne may be a good place to invest in for capital growth as property values continue to rise, but cash flow and vacancies are becoming a problem for many landlords.

New high-rise buildings are flooding the inner-city property market, generating an influx of units. This stock is expected to increase further over 2018. As a result, long-term tenants are getting hard to pin down at reasonable rent rates and many landlords are being forced to reduce their asking rents or offer free rental periods simply to attract a tenant.

The increasing dwelling prices are also making it difficult for investors to pay their mortgages with their present returns.

“Interest rates are probably not going to be going downwards – they are likely to increase over the next couple of years. The trend we are seeing is that people are struggling to lease properties or struggling to pay the mortgage,” said Quirin Schwaighofer, one of the founders of MadeComfy, a property management firm that focuses on short-term rentals.

One potential solution for landlords is short-term rentals. Over the past year, the number of AirBNB listings in Melbourne has doubled to 16,000, as the potential of this strategy is realised.

“It’s an alternative to the conventional rental concept. You have one or two days in between bookings, but you won’t have your apartment empty for a month simply trying to find a tenant who is [willing to] pay the rent that you need to cover your mortgage,” Schwaighofer said.

“AirBNB renters want to stay somewhere that’s nice, warm, homey and cheaper than a hotel. If your property is in a good location and it is recently renovated, then it is very likely that you will be able to achieve a higher return via AirBNB than with a long term tenant.”

A good location is key to success in the short-term rental market, as not all areas are suited to this strategy. Properties located near capital city CBDs are ideal – in this case, suburbs like Melbourne, Southbank, South Melbourne and St Kilda.

For many landlords, the potential problem with a short-term rental is the availability needed to handle bookings and maintenance on short notice. This is where a company like MadeComfy comes in, as Schwaighofer and his colleagues help landlords manage the process from beginning to end.