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Short term rentals are risky business

There are always people looking for new ways to get their hands on some “quick money” and a new trend proving popular in Canberra right now is short term rentals, targeting transient corporate tenants and tourists.

Not only is this a high risk type of investment is high risk, of equal concern is the potential for people to be seriously hurt as speculators scramble to make a quick buck.

According to an article in the Canberra Times, locals from the country’s capital are exploiting a loophole in the national building code that allows them to offer their properties as short term rentals, and in turn compromising not only the safety of their tenants, but the reputation of the local tourism industry.

ACT branch general manager of the Australian Hotels Association Gwyn Rees, says fly by night operators are using the Internet to promote short-term accommodation alternatives in the ACT, with a number of apartments being marketed as overnight rentals on-line.

He claims they have a competitive advantage over “legitimate” accommodation providers as they are not governed by the same high standards for security, fire safety and disabled access and only pay domestic tariffs on utilities.

Rees says, “[We] are not concerned about fair and robust competition between legitimate operators. However, people who on-sell these rooms have the very real potential to cause harm on a number of levels and undermine the high standards set by the accommodation and tourism industry.”

He said apartments and spare rooms that were rented out on a short-term basis created security and amenity issues for surrounding neighbours and points out the potential financial ramifications of incorrect insurance coverage, should the properties in question be damaged.

“There is also a risk to permanent residents and owners from fire, floor or other damage caused by the occupants of one of these apartments. A property insured for domestic purposes would not be covered for damage if used for short-term accommodation.”

Tourism and Transport Forum chief executive John Lee said the building code needed to be amended to ensure a level playing field.

“We believe there has to be a national discussion across all states, maybe there needs to be a new [building code] class created for serviced apartments.”

Under current standards, hotels and motels are classified as Class 3 and sole occupant units like apartments are Class 2.

However a spokesperson for the Minister for Environment and Sustainable Development, Simon Corbell, said there were no plans to change the the planning system in regard to short-term rentals.

“Providing the land is being used in accordance with the terms of the lease, the planning system typically does not prevent the lessee from sub-tenanting the property, either on a short or a longer term basis.”

So does this type of leasing make a good investment?

If you’ve been following my blogs for a while you’d know I believe you create your wealth by building a substantial asset base – by owning the type of property that increase in value over time.

Sure cash flow is important – but renting out by the night is a bit like renting out by the room as I’ve seen some investors do over the years. It makes property investment a much harder business than it needs to be.

When I say treat your property investments like a business I mean have a plan and a strategy and the correct finance and asset protection structures. I don’t mean collect the rents day by day or room by room – that’s too hard work for me!



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Short term rentals are risky business' have 1 comment

  1. Avatar for Property Update

    May 5, 2013 @ 5:18 pm ByTheNightGuy

    Sorry Michael,

    But you are incorrect – short term accommodation has been very profitable for me over the last 8 years and it appears that your hands are in the back pockets of the tourism and in particular hotel industry who have extreme cost structures.

    Your argument basically states that anything involving “regular” work with the property should be avoided because it’s “too hard” and that’s simply nonsense – ALL income streams require management.

    If anything, short term accommodation providers like myself assist the tourism industry by providing affordable accommodation options for a growing Asian market who, do not want to pay $200 per night for 2 people as they always travel in groups of 6 or 8 and expect to pay no more than $150 per night for 6 guests. The remaining funds are spent in shops, restaurants and other leisure activities which in turn creates employment in other sectors of the economy.

    A broader view from your end would not hurt.

    Reply


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