It’s getting harder to be a rental property owner these days. There’s the Healthy Homes minimum standards, the new rules around the ring-fencing of rental losses, and the looming reforms to tenancy law. And, on top of the swathe of regulatory changes, rental yields remain low.

The changed environment means that some people believe many landlords are likely to exit the rental market. While there’s no real evidence of such an exodus as yet, lots of rental property owners are opting to provide short term rental accommodation rather than operating in the traditional rental market.

Popular opinion has it that taking the Airbnb route leads to easy, sky-high returns. There’s a lot of hype around this but it’s not that simple. Some people make big bucks from putting an apartment, minor dwelling or bach up for short-term rent. Many do not. Those that do, tend to take a more active approach to their rental than they would with a traditional one.

As we’re fast approaching the peak holiday season, it seems timely to take a close look at what New Zealand’s short term rental market is really like currently. In this issue, we assess the scene, speak to a range of industry participants, and find out what you need to know to do well.

Number Crunching

There can be no doubt that short-term rentals are an increasingly popular option for property owners.

A recent Stats NZ report found that “home sharing” accounted for more than 8.8 million guest nights or 18% of total guest nights in 2018. That was 12% of all accommodation revenue and up from 8.4% in 2013.

Taking a closer look at regional numbers adds further weight to this. According to AirDNA, which collects data from both Airbnb and HomeAway, there’s currently 6,740 active rentals in Auckland. Of those, nearly 3,892 are entire homes.

ABOVE Short-term rental apartments in the CBD of larger cities tend to have a high occupancy rate. LEFT The America’s Cup will likely see nightly rental rates soar for the duration in the Auckland CBD. BOTTOM LEFT The Britten Stables in Christchurch is a great example of successful high-end short-term rental accommodation.

New Zealand’s other major centres – Wellington and Christchurch – have their fair share of short-term rentals. AirDNA’s latest figures have Wellington with 2,817 active rentals, of which 1,779 are entire homes, and Christchurch with 2,572 active rentals, of which 1,412 are entire homes.

In tourism hotspots, many of which have much smaller populations, the numbers are also high. In Tauranga, AirDNA currently has active rental listings at 1,406 and just over 1,038 of them are entire homes. In Rotorua, there are 1,097 active rentals at the moment and 864 of them are for entire homes.

And in Queenstown, which is seen as Ground Zero for the short-term rental market, AirDNA currently lists 1,706 active rentals, of which 1,479 are entire homes.

These figures are only a guideline as there are many other short-term rental property platforms, like Bookabach and Trade Me’s Holiday Houses, so the true numbers are likely to be higher. However, it’s worth noting that many of the properties listed are not being rented out full-time/for full years.

TOP AND ABOVE Holiday homes on Waiheke are extremely popular, especially over the summer months.

GOOD VIBES

Whatever the true numbers, positive tales about the joys of short-term rentals for investors abound. Auckland-based investor Scott Muirson’s story is a good example. Muirson is new to the shortterm rental market, having just bought and listed his first apartment in August.

“My apartment is a one-bedroom (plus a study with a pull-out sofa bed) in the Auckland CBD. After buying, I weighed up whether I should go down the traditional rental path or the short-term rental path but I decided I was financially able to carry the risks of short-term, at this point, and so I went for it.”

Since listing it, he has had a 100% occupancy rate and he’s renting it for $170 a night, as compared to around $500 a week. “I was told to expect 40- 50% occupancy until about November. But that hasn’t proved to be the case. I’ve just had my first two days vacant and then it’s booked for another long block.”

His experience to date has sold him on short-term rentals. “I’ll definitely be keeping it as a short-term rental especially with the America’s Cup coming up. I’ve been told it will be possible to get $500 a night during the Cup, which is pretty attractive.”

Further, Muirson has just bought another apartment in the Christchurch CBD and he plans to use that as a short-term rental too. “But I think to do well with short-term rentals location is critical.

You need an average of at least 55% occupancy across a 12-month period to make it worthwhile. In the Auckland CBD you are not likely to get an occupancy rate that low but you need to factor it into your numbers.”

Wellington investor Laurice Gilbert is another with good things to say about short-term rentals. Her short-term rental is on The Terrace in Wellington. The location and the fact she pitches it as “good, budget accommodation” means she has full occupancy year round.

“My experience overall has been positive. Most guests are conscientious about following the house rules and leaving the apartment clean and tidy, as required. And I am happy with the returns I get. I could earn more if I refurbished the property and replaced some of the furniture. But I’m getting enough to pay the mortgage faster than I was with weekly rent, and I enjoy it.”

ABOVE It’s important to differentiate your listing from others in the surrounding area when listing it online.

Holiday Houses’ Allan Hartley:

1 In a popular area you are competing with quite a lot of other short-term rentals so you need to do everything possible to make your property stand out.

2 Write a good description of your property. On top of the standard stuff about proximity to amenities, talk about the things that make it attractive and special. For example, the ability to drink cocktails in the spa pool on the deck looking at the sea.

3 Get professional, high-resolution pictures of the property taken. You are marketing your property so you don’t want out-of-focus, low grade photos. And include some photos of the surrounding area to give people a better idea of the location. Renters want to see what they are getting so make it clear.

4 Know who your property is going to appeal to the most and pitch it to your target renters accordingly.

Les Holland’s eco-friendly bach overlooking Waimarama Beach in Hawke’s Bay won the Bach of the Year (design category).

Bookabach’s Simone Scoppa:

1 Setting competitive rates is important: 85% of travellers say price is the most important factor when deciding to book. Bookabach has a tool called MarketMaker which crunches an area’s data to help with pricing decisions. It also gives an idea of when to put prices up or down due to demand and seasonality.

2 Be honest and upfront when you’re describing your property. Positive reviews are vital in boosting your booking chances, so try not to over embellish what your property can offer.

3 To make your property stand out, think about the little gestures that your guests may love and are likely to include in their reviews. If it’s a pet-friendly property include dog treats and bedding; or if a property has been booked for a girl’s weekend away, leave them some wine and cheese with a personalised note.

4 Bookabach Bach of the Year Award winner (Design category) Les Holland says: “Ensure your property stands out. My bach is a quirky and unique, eco-friendly property which is on a ridge overlooking Waimarama Beach (Hawke’s Bay). It’s an outstanding location and attracts lots of interest as a holiday spot.”

5 Make sure your listing includes clear house rules so you have peace of mind that your guests will look after your rental while also enjoying their holiday.

6 Get local help: have someone close to the property that renters can contact for the small things.

7 Get personal: learn a bit about your prospective renters via dialogue during the booking process to make sure they have the best experience possible.

A number of councils have introduced commercial rates when short-term rental properties are rented out for over a certain number of days a year. ABOVE Summerhus at Oneroa, Waiheke and RIGHT Diamond Deluxe Queenstown are both subject to bylaws imposing commercial rates.

Getting It Right

However, behind the scenes, there’s a lot that investors need to know and do correctly to ensure that a short-term rental is worthwhile. Critically, would-be short-term rental hosts need to consider the relevant council rates and regulations; tax requirements and appropriate insurance policies.

Local Government Rules

Concerns around supply shortages in long-term rental markets, along with pressure from traditional accommodation providers, mean that a number of councils have introduced rates and regulations for short-term providers. Queenstown and Rotorua impose commercial rates when short-term rental properties are rented out for over a certain number of days a year. Auckland has introduced a tiered rates system that sees short-term providers pay a percentage of their rates as business rates, based on how many days per year are booked.

For properties booked under 28 days, the system does not apply. Properties that are booked for 29-135 days are rated 75% residential and 25% business, those booked for 136 to 180 see a 50/50 split, and properties booked for more than 180 nights a year attract a 100% business rate. The regime only applies when a distinct property, or part of a property, is being rented out short-term. So that means an entire dwelling, an apartment or a self-contained unit is subject to it, but a room within a residence is not.

Other councils around the country are also looking to introduce rates and regulations for short-term providers.

These include Tauranga, Christchurch, Westland and New Plymouth. And Local Government NZ recently announced it will be pushing hard for greater regulation of short-term rental operators.

Tax Considerations

When it comes to the accounts, investors need to think about their income tax situation, GST, and the ownership structure they have their rental(s) in. But Pathfinder Solutions’ Kenina Court says the big difference between short-term and long-term rentals is GST. It’s necessary to register if over $60,000 per annum is generated.

Bookabach Bach of the Year Winner for the Design Category.

The Panorama Terrace property listed on holidayhouses.co.nz overlooks Lake Wakatipu and starts at $474 per night.

“There can be serious ramifications if you get this wrong. Say you buy a property to be a long-term buy-and-hold and then you decide to put it on Airbnb because you can get better returns. But if you haven’t claimed GST it could come back to bite you when IRD realises what you have been doing it and it comes time to sell. You could lose 15% on the sale.”

For this to happen, the rent earned would have to be over $60,000, she says. “So if you are doing it with one property and that property generates $25,000 you’d probably be okay. But as soon as you go over that threshold it becomes an issue.”

It’s also not just about going over $60,000. Court says that to make it worthwhile the rent has got to be $60,000+ GST. “That could be a problem because there is a point where GST takes a disproportionate amount of the cash that you are generating.”

The IRD’s systems are increasingly sophisticated so the ability to duck and hide is becoming more limited, she adds. “You have to list an IRD number when you buy and sell property now. So they might take a while to catch up but it doesn’t mean it won’t happen. My advice talk to an accountant. Because if you get it wrong it can be unforgiving and expensive to fix it.”

Insuring Protection

It is critical for investors to get all their insurance ducks in a row with short-term rentals. That’s because your standard domestic house and contents insurance policy isn’t suitable for house sharing situations. So if something goes wrong such as damage or theft – there’s a risk of not being covered if the right type of policy is not in place.

Initio’s Rene Swindley says a standard home contents policy won’t cover items stolen by individuals allowed in the home. Nor will it cover intentional damage caused by guests. “That means that you’re not covered if anyone who has a key (or their guest) steals or damages your stuff – including your home.”

“A landlord insurance policy will usually provide cover for the above, but generally comes with a bunch of obligations. These include things like reference checks, credit checks and written inspections between tenancies. Without upholding your obligations, which are generally impossible for holiday rentals, the insurer could deny your claim.”

One option is to get a commercial insurance policy and, if a property is used purely as a commercial enterprise, it is necessary to do so in order to get earthquake and natural disaster cover. But Swindley says commercial policies can cost thousands of dollars and are not always necessary.

Another option is an insurance policy designed specifically for holiday rentals. For example, Initio offers a policy which covers the house and contents, intentional damage and theft by paying guests. Landlord obligations don’t apply for short term guests and it provides public liability insurance, which is something else short term providers should think about.

A number of the short-term rental platforms provide host guarantees, but they are not as straightforward as they might seem and might not provide the cover required, Swindley says.

“The Airbnb Host Guarantee is not an insurance policy and claiming is not that easy. Bookabach Owner Protection provides an actual backup insurance policy, which is locally supported. But the guest booking must be booked and paid online through Bookabach and a current house insurance policy also needs to be in place.” This all means that anyone putting their property up for short-term rental should talk to an insurer about what they are planning to do and ensure they lock down an appropriate policy.

Management Logistics

Another critical consideration is the time and costs involved with managing a short-term rental to the standard required. Consumer expectations are high. Everyone interviewed for this article agreed that short-term rentals are expected to be run professionally – on a par with hotels. Therefore a short-term rental needs to be run as a slick service operation.

The general view was that if an investor doesn’t have the time and capacity to manage and clean their property to the standard required themselves, they need to sign up with a reputable, short-term property management company. This is an additional cost (usually of about 12-15%) but it was widely agreed to be worth it,
especially if they can ensure a better guest experience (by meeting and greeting guests, for example).

‘IRD’s systems are increasingly sophisticated so the ability to duck and hide is becoming more limited. So they might take a while to catch up but it doesn’t mean it won’t happen’ KENINA COURT

Professional Insights

It should come as no surprise that short term rental property performance is also highly dependent on the location and type of property. But it’s important to realise that not all locations are created equal and the average suburb is not going to be as attractive as a “destination” location.

The CBDs of the main cities are a solid bet all year round as they attract overseas tourists as well as domestic business and event travellers. But properties in traditional Kiwi holiday spots can also be successful – especially during their peak seasons.

Bookabach’s most popular destinations in 2019 were Queenstown, Rotorua, Taupo, Mangawhai Heads, Raglan and Lake Wanaka. In a similar vein, Holiday Houses’ most favoured locations were Queenstown/Wanaka, Mt Maunganui, Hanmer Springs, Martinborough and Taupo. These are all tourist destinations and tend to see their highest demand during school holidays, long weekends and the Christmas/New Year break.

Bookabach’s Simone Scoppa says that anyone wanting to put a property up as a short-term rental needs to be realistic about their property. “Is the location a popular holiday destination all year round, or do people tend to travel there only seasonally? Because this can impact on the popularity of this property.”

A property’s ability to cater to families, or larger groups travelling together can also be a significant factor in demand. Holiday Houses’ Allan Hartley says they find family-sized homes are particularly popular.

“Three to four-bedroom, or larger properties that can fit a family or even two are sought-after. This is particularly because hotels and motels don’t really cater to large family groups in that way. And many families like to travel together.

“Also, properties that can offer the sort of facilities that you find in a home. So decent kitchens and laundry set-ups are good. People are less keen on the rustic, bring-your-own-linen-thing these days. They want a clean and tidy home away from home but in a new, attractive location.”

With short-term rentals, some of the rents made can certainly outstrip standard long-term rental rates, but it does depend on the owner’s situation, Hartley says.

“What we are starting to see is people who have a property in the long-term market for a while and in the short-term market for a while. It’s about diversification, mixing up the two options, and doing so strategically to suit your situation. That’s what can work out best.”