Airbnb vs Long term rentals in Perth, which strategy delivers the best returns?

Perth's property market has experienced significant growth in recent years, attracting different investors looking to maximize rental income and build long-term passive wealth. Some questions property owners face is whether to operate their property as an Airbnb, a short-term rental or secure a traditional long-term tenant. What are the pros and cons of listing your property on short term vacation platforms such as Airbnb and VRBO? Would it be better to list on Airbnb as apposed to leasing the property to a long term tenant? This blog post dives deep into some of the common concerns and issues on either end of the spectrum.

A current overlook into the Perth property market

There is no doubt that all of Australia has had a property boom in the last 5 years since the Covid pandemic. Perth has become one of Australia's most competitive rental markets as a result, driven by strong population growth, some of the best outdoor amenities, limited housing options, and increasing demand from interstate and international arrivals.

This has led to rising rent prices and low vacancy rates, long lines at viewings and this can create difficulty selecting the right tenant. This in turn is creating opportunities for both short-term and long-term rental investors. Is this an investors dream situation vs a tenant’s nightmare? These are some of the important questions to look at when considering options long term.

Airbnb / Short term rental benefits

Higher Revenue Potential
During peak seasons such as Christmas and Easter, Airbnb rates increase relative to the increased demand around these times of the season, rates can increase typically between 25% - !00%.

Location, location, location. A very important factor for having a higher revenue return due to increased occupancy rates. Beachside and properties closer to the CBD have higher occupancy rates.

Owner Flexibility
Owners can have better flexibility in terms of using their own property and easier access to move back into if need be.

Renovations, maintenance and modifications to the property are easier to schedule, making it more ideal for new or first home buyers.

Regular Property Monitoring
Frequent cleaning and guest turnover often mean issues are identified and addressed quickly.

Dynamic Pricing Opportunities
Property owners can increase rates during high-demand periods, maximizing returns.

Airbnb / Short term rental cons

Occasional Volatility

Occupancy rates can fluctuate throughout the year, creating inconsistent cash flow. Some Months are extremely better than others, vice versa.

Increased Operating Costs

Cleaning fees, utility bills, internet, maintenance, furniture, and platform commissions all effect net profits.

Increased Management Requirements

Managing bookings, guest communication, check-ins, and reviews requires time or professional management services. Using a management service makes the process passive. The headache of guests messaging at 2am for having no internet connection is not fun to deal with. Airbnb management services eradicate all guest communication and issues, making the process a whole lot smoother.

Regulatory Considerations

Local council regulations and strata by-laws may impact short-term rental operations in some locations. Yet again, a professional management service takes care of this for you.

Long term rentals: Stable and sometimes predictable

Long-term rentals involve leasing the property to tenants for a period of six months, twelve months, or longer. This remains the preferred strategy for many Perth investors seeking consistent income and lower management involvement. There are some drawbacks to long term leasing however. Are all tenants good tenants?

Long term rental benefits in Perth

Consistent level of cashflow
Leasing long term in Perth can be good due to low vacancy rates, this means receiving the same rate each month regardless of season.

Lower Management Needs
If the tenants maintain the property and treat it as their own, the level of management can be reduced at times.

Reduced operating costs
Due to a consistent level of use of water, electrics and other bills such as Internet are mostly coverd by the long term tenants.

Long term rental cons in Perth

Reduced levels of Revenue
No ability to capitalize on holiday rates and major events. Lower overall revenue each month in comparison to Airbnb rates. Long term rates can also be reduced by local council regulations and lease agreements.

Risk of poor tenants
Problem tenants, rent not coming in on time, or property damage can impact returns, although these risks can be mitigated through proper screening and professional property management.

Less Flexibility
Due to the nature of a long term lease agreement, flexibility around renovations, modifications and household use is limited.

Final considerations when choosing between Airbnb or long term in Perth

Both Airbnb and long-term rentals can be successful investment strategies in Perth. Airbnb generally offers higher income potential but comes with greater management responsibilities and income variability A professional Airbnb management company can mitigate majority of management responsibilities to create a passive investment. Long-term rentals provide somewhat stable, predictable cash flow, and lower operating costs.

The most profitable option depends on your property's location, target market, and investment goals. Investors who prioritize maximum revenue and flexibility may prefer Airbnb, while those seeking passive income and lower risk often find long-term rentals more suitable. Speeking to a management company can help you understand if your property is suited for Airbnb in Perth.