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If you're planning to invest in rental properties, you have the option of doing a long-term or short-term lease. Both offer passive rental income; however, they're different strategies that have their own risks and challenges.
For those still unsure which rental strategy to choose, we've outlined some important things you need to know:
What's a long-term rental?
This refers to properties with longer lease terms, which usually range from six months to several years. Many investors prefer this rental strategy due to its stability and consistency.
Long-term agreements offer a steady and predictable stream of income, unlike short-term rental agreements. For some, the security of a long-term lease outweighs the potential increase in rental income that they could garner with short-term rentals.
Long-term rentals typically have less frequent tenant turnover, which minimises the risk of vacancy. Because there's less turnover, some may find long-term rentals easier to manage as there's no need for constant cleaning, marketing, and booking management. However, landlords remain responsible for repairs and addressing tenant concerns.
What's a short-term rental?
This is a type of rental property with lease terms ranging from a few days to a few weeks. A common example of short-term rentals is properties listed on Airbnb or Stayz.
Short-term rentals usually offer property owners more flexibility. You can adjust rental prices based on demand. If the property is in a tourist destination, for example, you could price it higher during peak seasons and lower during leaner months. It also gives you more control over when the property is available for rent.
Because short-term rentals have more frequent turnover, there may be more operational costs such as cleaning, marketing, and booking management. If you list the rental on online platforms, you may have to pay online booking fees as well.
Rules and restrictions for short-term rentals in Australia
In recent years, state and territory governments have put forward new rules and regulations that limit how long short-term rentals can operate in a year and impose levies on booking platforms such as Airbnb and Stayz.
Some states impose caps on short-term rentals, while individual councils and cities may have additional restrictions.
Here's a quick state-by-state overview of short-term rental regulations:
New South Wales
Every dwelling must be registered and renew the registration annually on the state Short Term Rental Accommodation Register; $65 fee for new registrations and a $25 fee for renewals. Properties must also comply with the Fire Safety Standard and mandatory Code of Conduct.
Victoria
Starting 1 January 2025, a 7.5% levy is imposed on bookings under 28 continuous days. No other state-wide restrictions apply.
Queensland
There are currently no statewide restrictions regarding short-term rentals. Take note, specific councils may have levies, night caps, or other restrictions.
Western Australia
Under the Short-Term Rental Accommodation Act 2024, every short-term rental property is required to be on the Short Term Rental Accommodation Register.
South Australia
The state currently has no statewide levies or restrictions. The City of Adelaide has re-rated properties used or advertised as short-stay accommodation for more than 90 days a year as commercial properties for council rates.
Tasmania
Visitor accommodations, including investment properties, need a council planning permit. Listing information must be reported to the Director of Building Control every quarter under the Short Stay Accommodation Act 2019 for booking platforms.
Australian Capital Territory
For bookings of 28 days or fewer made through booking platforms (starting from 1 July 2025), a 5% Short-Term Rental Accommodation Levy is imposed. The levy will rise to 7.5% starting 1 July 2027. The levy is intended for booking service providers, not the hosts directly.
Northern Territory
There are currently no statewide restrictions regarding short-term rentals. However, it's best to check with the local council and keep abreast of zoning laws.
Local councils have their own restrictions on hosted or unhosted rentals ranging in stringency. It's best to check in with your local council to see what's allowed.
Pros and Cons: Short-term vs Long-term rentals
Short-term rentals offer flexibility and potential for higher rental income. However, they also require a lot of hands-on management in terms of booking, marketing, and property maintenance, as well as a higher risk of vacancy, as revenue potential depends on seasonal demand.
Meanwhile, long-term rentals could provide more security, stability, and consistency. Because there's a longer lease term, it may be easier for landlords or property managers to maintain the property. A few downsides to a long-term rental include less flexibility and rental prices that may be locked in for the duration of the lease.
Below is an overview comparing short-term versus long-term rentals.
|
Short-term Rental |
Long-term Rental |
|
|
Lease terms |
Can be as short as overnight stays or as long as a few weeks |
Between six months to a few years |
|
Rental income |
Rent can be adjusted based on demand |
Rent may be increased in accordance with the lease agreements and applicable tenancy laws |
|
Vacancy |
Higher risk for vacancies and is dependent on bookings |
Less risk for prolonged vacancy due to longer lease terms |
|
Flexibility |
Investors can choose when to rent out the property and dictate rent prices in line with demand |
Investors are typically locked in with the same tenant for the duration of the lease term |
|
Property management |
Requires frequent marketing and booking management |
Typically requires less frequent management |
|
Maintenance |
Higher guest turnover can lead to more frequent cleaning and greater wear and tear on the property |
Tenants are responsible for the day-to-day care of the property, with landlords being responsible for repairs |
Final thoughts
Each option has its advantages and disadvantages. The key is understanding your goals as an investor and finding a strategy that helps you achieve them. Also, it's best to consider the location of the property and whether a long-term or short-term rental would suit the market better.
If you're just starting on your property investment journey, a good first step is figuring out how to finance the property purchase. At loans.com.au, we can help you find a suitable finance solution for your investment property.
Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek professional advice tailored to your personal circumstances before making any financial decisions.
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