The lucrative world of short-term rentals

Investors looking to buy a property offshore can potentially recoup their money faster through short-term rentals than traditional letting options, all the while earning income in a foreign currency.

This is according to George Radford, Head of Africa at IP Global, who says the growing popularity of short-term rentals as holiday accommodation has made buying a property abroad more appealing than ever.

Using online marketplace Airbnb as an example, the 2017 Property Return on Investment Index, created by “proptech” company Nested, showed that it would take over 13 years to recuperate the value of an average three-bedroom property in Durban via traditional rental methods, and just 18 months using Airbnb.

In Cape Town – one of 13 global cities with Airbnb Plus ranked homes – the average rental is R1 287 per day, with 78% occupancy, yielding an average income of R19 408 per month.

While Cape Town and Durban might seem like appealing investment options for South African investors, there are additional benefits to buying a property in key destination cities abroad.

“Although short-term rentals require more active management, the returns are worth it,” says Radford. “At the same time, you are earning an income in a foreign currency, which is always a good rand-hedge option.”

Above (and main pic): Berlin

According to some figures, you could earn up to 5% net yields with short-term rentals compared to the 2% or 3% yields with long-term rentals in the same markets, Radford adds.

In addition, the Vacation Rental Trends Report 2018 by HomeAway Software saw nearly 50% more rental bookings from holidaymakers at the start of 2017 than it did in the previous year.

“Although short-term rentals require more active management, the returns are worth it. If you are going to manage a short-term rental apartment or home, it is important that you run it as a business.” – George Radford, IP Global.

Radford says the holiday rental market is growing thanks, in part, to digital advancements that have made it easier for people to find affordable accommodation in trendy neighbourhoods.

The key to short-term rental success lies in picking the best destination cities. Naturally, any city that attracts a flood of tourists has the potential to deliver good returns. However, it is important to thoroughly research whether there are any municipal restrictions on short-term letting in the city you’re interested in. Radford says that it is important to consider the following:

  • Investigate occupancy rates. Find out from short-term rental agencies or online research tools how frequently rooms or apartments in your city of choice are occupied.
  • Find out the short-term letting rules and regulations for the city.
  • Investigate the tax implications of running a short-term rental in the destination city.
  • Find out if there are any licencing requirements before starting to operate your short-term rental.

Radford recommends Berlin (70% occupancy), Lisbon (70% occupancy) and London (71% occupancy) as cities with great short-term rental potential and contemporary developments to invest in.

There are additional considerations in making an apartment short-term-rental ready. “If you are going to manage a short-term rental apartment or home, it is important that you run it as a business,” he adds. “This involves creating an appealing and functional space where tourists will want to stay. There are many agencies that now specialise in setting up, welcoming and cleaning up after guests, so this should be factored into your cost calculations.”

Radford says there are several factors to consider when investing in and managing a short-term rental in a foreign city. “For individuals with money to invest offshore, this is a great way to earn above-average returns – as long as you do your homework, get sage advice, and make the correct investment to suit your needs.”