In this comparison between Airbnb and long-term rentals, we explore which option can bring higher returns, more security, and flexibility. From upfront costs to management hassles and even how short-term rentals affect your borrowing power, this comparison helps investors make informed decisions.
.jpg)
All right, guys, here it is: the big showdown—Airbnbs versus long-term rentals.
We're going to have five rounds—five different topics around which one is better:
Be sure to stay all the way through to the end because I'm going to share with you why Airbnbs and short-term rentals can have a devastating effect on your ability to borrow more.
Despite the results of the five rounds, I urge you to take in that information because there are so many conversations around borrowing costs and capacities, and it's very important that you stay aware of this.
Now, how we're going to do this is to have a running total.
Each round, I'll cover the pros and cons for Airbnbs as well as long-term rentals, and then we'll award a winner for that round.
With that, let's get started.
When it comes to short-term rentals, in most cases, you can charge a lot more on a weekly basis than you can with a long-term rental.
You can adjust your pricing according to popular periods.
Let's say, for instance, you have a property with a view of the fireworks—then you know you could probably charge quite a bit when it comes to New Year's Eve or any other events with fireworks.
If you also have a property in a very popular area, you’ll find that you can actually charge more on the weekends, and during the week, you might have some sort of special, so you have ongoing income coming through.
Now, compare that to a long-term rental, where there are so many laws in place to protect the tenant, you can't just go in there and increase the rent every single week, or say: Hey, you know what, on the weekends, we're going to charge you this much, but on weekdays, it's a lot less.
Every state has different rules, but effectively, you can probably increase rents once every six months or once a year. Even then, the increase has to be reasonable—you can't go in and say: Well, yes, we charge 200 bucks a week to rent here, and now we’re going to charge you 800 bucks six months from now.
We do have a rental crisis at the moment, which means if you had something rented out six months ago, it's safe to say it’s probably not worth the same now in terms of rental prices.
We've seen increases of about 10-15% in many areas across Australia in 2023 alone.
Therefore, knowing that you can adjust your pricing with short-term rentals and charge a lot more on a weekly basis, the winner in this round is short-term rentals.
With short-term rentals, you've got to compete with other properties and other people who have their properties on Airbnb.
You have to provide something unique and competitively appealing.
You could say: Well, you know what, I’m offering free Netflix, free Wi-Fi, I've got a car spot, it’s fantastic!
However, what could happen is that others might also convert their properties into short-term rentals and offer even more. This means you could lose out on a lot of business.
In addition, you don’t know if people want to stay for a couple of days or a longer period, like three months. That’s where the insecurity lies—it’s not consistent.
You can charge more, but the income isn’t guaranteed. This is especially a problem if your property is only popular during certain seasons. For example, if you have a property near the water, it may only be in demand during the summer and possibly spring. So, for six months of the year, you might not get the income you expect.
When you compare this to the long-term security of a long-term tenant, it’s pretty clear who wins this round.
The peace of mind of knowing you’re going to get paid every single week is priceless, especially when you start growing a property portfolio.
Yes, in the short term, you might get more income from short-term rentals, but as you manage six or seven properties, it becomes more difficult.
In this round, the long-term rental wins.
Now, we know that with Airbnbs, you pretty much have higher upfront costs because you are providing clients with a furnished apartment. So, you're going to have to get all the little bits and pieces as well as beds, TVs, and anything else in the kitchen that you need.
Now, if you've never moved out and never bought the furniture yourself, you're pretty much like me about 2 years ago, where I thought: “You know, it's not that expensive. I don't think it's going to be that expensive,” then I saw the bill, and after we got everything, I was like: “Oh, that's expensive.”
That could be at play here. You purchase a property, and you're saying: Well, I'm in a good location. I want to put it out on Airbnb and make some money, but then you realise you're probably going to fork out like $15,000 to $20,000 to get this place spruced up with nice furniture, and you need that because the Airbnb market is very competitive.
In comparison, when you're renting out a long-term rental, you're most likely dealing with tenants or people that are moving into your property who have their own existing furniture.
Therefore, in this case, you actually don't have to provide anything. In fact, in some cases, properties that are unfurnished are more popular than furnished ones.
I remember for the first property we moved into, we actually opted for a furnished property.
Now, this was obviously during the pandemic, so it was actually an Airbnb that had been converted into a long-term rental. That worked out fantastic for us because we didn't have the upfront cost—we had just moved out of home and, of course, started paying rent for the first time.
Yes, the bank account was not happy, but it allowed us to transition quite smoothly without having to run around trying to get bits and pieces or dealing with furniture lying around. Instead, it was already set out. We got in, did our thing, and then we moved.
Given the upfront cost of having a furnished apartment or furnished home is so much more than for a long-term rental, the long-term rental wins this round.
When you've got a short-term rental, you actually have the flexibility to not only increase and decrease your price but also block out periods of the year when you don't want anyone staying there.
This allows you to go in physically yourself or have family members stay in the property. This is fantastic because, if you have a property in a really popular location, imagine trying to get a hotel or Airbnb in that space?
Instead, you can say: Well, we're going to rent it out for short-term stays for maybe 48 weeks of the year, and for four weeks, we’re going to enjoy it ourselves. This way, you don’t have to worry about finding a hotel or Airbnb with availability—you already have a place there.
Therefore, there's a lot more flexibility compared to a long-term rental.
If you have a long-term tenant, they're going to stay there probably for quite some time. With the rental issues we're seeing in many parts of Australia, they're likely to stay longer than you will even own the property.
I know for myself, I've got properties that I bought, say, 9 or 10 years ago, and the tenants had already been there for five or six years before I even bought the place, and they're still there.
This is quite a common argument against residential properties versus commercial ones, where people say: "I opt for commercial properties because I get long-term tenancies."
What we've got to understand is that some people who move into a rental property treat it like their own home. They stay there for so long, and they're happy paying rent.
In my case, I've got multiple tenants who have been there for more than 10 years.
So, yes, consistency and peace of mind—knowing you have someone who will take care of the property like it's their own—is why I continue to choose residential property.
However, in this case, when you're looking at flexibility, it's the short-term rentals that win.
The added bonus here is that if you decided you wanted to upgrade the property, or you wanted to renovate it in some way, you could actually just block out a period in the year, go in, have it renovated, and then it's all spruced up for whatever you want to do next.
It is definitely not as easy when you've got a long-term tenant in there. They may want to stay, and then you've got to give notice before they can actually leave and you can finally get those renovations done.
So, with one round to go, it's 2-all, and it's coming to a nail-biting finish. (I feel like I'm a sports commentator at this point!)
With short-term rentals, you can go out and manage it all yourself, and I can tell you now, it would be an absolute nightmare.
You'd not only have to consider how people are using the space, but you'd also need to manage everything—from getting it cleaned before and after each stay, to figuring out how they'll check in and check out.
If it's not a property close to you, how do you manage that?
You could also choose to outsource this. There are companies out there that offer Airbnb management services, much like a regular property manager would.
However, what I've found is that the rates for these management fees are quite high, and they are very high compared to those for residential properties and long-term tenancies.
When you look at long-term tenancies, if you have the right process in place, it can be such a seamless experience.
What you can do is have your property manager take care of all your outgoings and manage any urgent requests.
I've often seen people on the internet worried about getting calls in the middle of the night because a tap broke, there was a plumbing issue, or "the toilet exploded."
What you're actually doing is having a property manager take care of those things, and if there's an emergency in the property, the tenant’s first point of contact is their property manager, who will most likely call a plumber or another tradesperson to fix the issue.
The cost would be forwarded to you later, but that’s the best way to manage a property.
For me personally, in my 10 years of investing in real estate and now having a portfolio of more than 10 properties, I can assure you it’s not as bad as they say on the internet. If you do it well, you can manage it quite efficiently and seamlessly.
In this round, the long-term rentals win.
That means we've come to the end of this five-round comparison, and the long-term rentals are the winner—just barely—3 to 2!
Now, I'm glad that you've stayed all the way through because something else that people don't often tell you—and don't talk about enough—is how short-term rental stays affect your borrowing moving forward.
Sometimes, people are looking for cash flow, so they think: Well, if I can put it on Airbnb, I'll be able to generate a lot more cash flow. This will then allow me to borrow more.
This is the whole game, right?
You're told you need to build the machine, and then the machine's going to keep building in the background, allowing you to live a life full of freedom—and, more importantly, financial freedom.
However, when it comes to the borrowing calculators that banks use, short-term rental stays actually incur a lot more shading compared to long-term rentals.
By shading, I mean the bank effectively reduces how much income they consider in their calculations.
For example, if your property rents out for about $20,000 per year, the income shading some banks apply is about 30-40%.
What this means is that they'll take that $20,000 of rent you could generate from your short-term rental, subtract 30 or 40% from that, and use the remaining amount to determine how much you can borrow.
When you look at the numbers this way, you could end up being viewed by the bank as negatively cash-flowed, and in a worse financial position than if you had just gone ahead with the less headache-inducing approach of renting to a long-term tenant.
Some banks apply less than 20% shading to long-term residential property income, and some even apply zero shading. This means they take 100% of the income you generate from a long-term tenant into consideration.
This is all built into their calculators because they're trying to reduce their risk and keep volatility low.
Of course, if you've got a tenant who has been in the property for a year or two, signing up for contracts, that’s less volatile for the bank and carries less risk than having multiple people stay in your property throughout the year.
I hope you guys have enjoyed and learned so much from me in this article
I'll catch you guys in the next one.
Thanks, guys!
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
.png){kind=icon}
.jpg)
.jpg)
%20(1).jpg)
%20(1).jpg)
%20(2).jpg)
.jpg)
