To Airbnb or not to Airbnb? Investors face a tough call

An explosion of short-term rentals since 2022 – rising about 56 per cent to an estimated 200,000 today – has largely been driven by the much higher rental yields paid by tenants seeking short stays, but experts say the risks are rising.

Median capital city weekly rents have surpassed $700 for the first time, rising 3.7 per cent in the year to September 30 to reach $702, Cotality data showed. Regional weekly rents rose 5.9 per cent to $591.

In contrast, holiday homes and other short-term stays have an average rent near $300 per night, according to research last year by short-term rental platform Beyond Pricing. But it found the vacancy rate was 51 per cent – much higher than the current national vacancy rate for traditional dwellings of 1.5 per cent.

Mecca Property Group founder Abdullah Nouh said short-term rentals played a role for investors seeking lifestyle benefits such as using the property themselves for part of the year.

“However, short-term rentals are rarely a path to long-term wealth in isolation,” he said.

“Cleaning and furnishing costs can quickly eat into returns. Income is inconsistent. And, perhaps most significantly, regulation is tightening.

“Many state and local governments have already introduced caps on the number of days a property can be rented out short term, while others are levying extra taxes or licensing fees to disincentivise owners from taking properties out of the long-term rental pool.”

Mr Nouh said the South Australian government was the latest to start examining new fees for short-stay accommodation owners, with a parliamentary inquiry last month recommending a new scheme and registry to track properties and slap a levy on owners.

Metropole Property founder Michael Yardney said Victoria’s 7.5 per cent short-stay levy on total booking fees started this year, while NSW and other states were floating and tinkering with new taxes, night caps and other rules.

Mr Yardney said there was no national registry of how many properties were used for short-term rentals, adding that industry estimates ranged between 130,000 and 280,000 depending on seasonal activity and other factors.

He said this was still a small portion of the national long-term rental pool of an estimated three million dwellings housing the 31 per cent of Australian households that rented.

Mr Yardney said while short-stay accommodation delivered owners higher gross incomes, “net outcomes are far less certain when you take into account vacancy periods and operating costs such as furnishing, cleaning and linen, restocking, insurance, repairs between stays, platform and merchant fees, and professional management”.

“Short-term rentals often look attractive on paper because of their higher nightly rates and the perception of strong demand from tourism, but once you dig into the numbers, they’re rarely great long-term investments.

“The main problem is that they behave more like a small hospitality business than a property investment. You’re not just a landlord — you’re effectively running a mini hotel, with constant management demands, cleaning, maintenance, marketing, and guest communication.”

Mr Yardney said ongoing costs quickly ate into headline income, and that the best-performing properties for wealth creation were typically in owner-occupier dominated suburbs.

“Long-term tenants treat the property as a home, not a hotel room, which means lower wear and tear and a more consistent income stream,” he said.

“Short-term rentals can work as a niche strategy in prime tourist markets or for lifestyle reasons, but for investors seeking sustainable, compounding wealth through property, they’re generally a distraction from the fundamentals that build long-term financial freedom.”

Mr Nouh, a buyer’s agent, said the choice between short-term and long-term rentals came down to people’s personal objectives.

“If your goal is lifestyle first, with some income to help cover costs, a short-term rental may serve you well,” he said.

“If your goal is long-term wealth creation, then long-term rentals remain the better choice.

“Long-term properties allow investors to plan with greater certainty. When you’re building a portfolio, that stability becomes a strategic advantage.

“You can assess your borrowing power, calculate rental yields, and make decisions with fewer unknowns. It’s this structure and consistency that allow serious investors to acquire multiple assets over time, using equity and rental income to fund the next move.”

This article first appeared in The Australian as Are short-term Airbnb or long-term tenants the best bet for investors?