The Financial Upside: Breaking Down the Revenue Potential of Short-Term Rentals

Posted by The MadeComfy Team
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Published on Nov 07, 2023

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The evolving landscape of  property management and Australian real estate more broadly has opened doors to innovative ways of earning revenue. At the heart of this change is the rise of short-term rentals (STRs). While many property owners are familiar with the traditional long-term leasing model, there's growing curiosity around the financial potential of STRs. Let's deep-dive into the financial aspects of STRs, comparing them with traditional models using real-world data and projections.

Understanding the surge in Short-Term Rentals

The rise of platforms like Airbnb, Vrbo, and has changed the face of the short-term rental industry forever. Tourists, business travellers, and even locals looking for staycations are increasingly opting for STRs over hotels for their homely feel, privacy, additional amenities like kitchen and laundry facilities, and often even pricing. 

The numbers: Short-Term vs. Long-Term Rentals

To grasp the financial differences, let's delve into some real-world data:

Long-term Rental: Picture a two-bedroom apartment in Sydney's vibrant CBD. In the conventional rental market, it might secure around $900 a week, resulting in an annual income of $46,800.

Short-term Rental: The very same apartment, when advertised as an STR, could be listed anywhere from $250 - $350 per night. Assuming an occupancy rate of 75% (a conservative estimate for a well-presented property in such a sought-after location), at the low estimate of $250 per night, this would be approximately 274 nights annually, yielding a potential annual revenue of $68,500.

This comparison illustrates a stark contrast. In this scenario, the STR approach could potentially generate over 45% more revenue than its long-term leasing counterpart.

In a more detailed analysis below, we see that even with increased management fees for STR, the yield is 40 - 70% higher than traditional long term rental.

Revenue breakdown Long-term rental Low estimate High estimate
Gross revenue $46,800 $76,159 $93,084
Management Fee % (+GST) 6.0% 20.0% 20.0%
Advertisement fee % (+GST) 3.0% 0.0% 0.0%
Management fee $ $3,089 $16,755 $20,478
Advertisement fee $ $1,544 $0 $0
Net revenue $42,167 $59,404 $72,605

Factors amplifying STR revenue

Several factors can influence these numbers:

  1. Dynamic Pricing: Unlike long-term rentals with fixed monthly rates, STRs can adjust prices dynamically, considering peak seasons, local events, or weekends.
  2. Strong Tourism Industry: According to the Australian Bureau of Statistics, between August 2022 and August 2023 there were 6.4 million international arrivals indicating a 248.2% YoY change from the previous calendar year.. This high influx of tourists makes short-term rentals a financially beneficial venture, capitalising on the regular stream of travellers seeking alternatives to traditional hotels.
  3. Amenities & Location: STRs generally attract guests who are willing to pay a premium price, particularly if the property has access to premium amenities, or in a desirable location.
  4. Guest Costs: Many costs including booking and cleaning fees can be passed onto the guest.

What about expenses?

Here’s how owner expenses for long-term might stack up against short-term for the same two bedroom property in Sydney:**

Long-term Short-term
Utilities (Gas/Electricity) Paid for by the tenant $181 average monthly cost
Water $67 average monthly cost $67 average monthly cost
Wifi Paid for by the tenant $71 average monthly cost
Furnishing Paid for by the tenant $15,000 approx. one off cost.
Maintenance Owner's cost Owner's cost
Cleaning Paid for by the tenant Paid for by the guest $200-300 annual cost for deep cleaning
Marketing & platform costs 3% approximate marketing cost paid to real estate agency Paid for by the guest 12-18% channel fee for each guest booking
Regulations & Licences $65 (STRA Sydney) once off cost $65 (STRA Sydney) once off cost
Insurance $548 annually (EBM landlord cover) $584 annually (EBM short-term rental cover)
Management fees 6-9% average fee 20-25% average fee

**These figures are an estimate as of October 2023 and are subject to change. 

While the traditional long-term rental model offers stability, the dynamic world of short-term rentals presents a promising avenue for those seeking to maximise revenue from their properties. By understanding the intricacies, staying updated on regulations, and catering to the evolving demands of renters, property owners can tap into this lucrative segment, reaping substantial financial rewards.

So what does this mean for Property Managers looking to capitalise on this shift?

The increasing prominence of short-term rentals (STRs) in the real estate landscape signifies a crucial shift in consumer preferences and investment opportunities. As property managers consider the addition of STRs to their portfolio, several key takeaways emerge from the financial breakdown above:

The Short Term Rental Advantage The MadeComfy Pro Advantage
Potential for Higher Revenue The revenue margins in STRs, as illustrated, have shown to be substantially greater than traditional long-term rentals. With the potential for properties to earn 40-70% more than long-term rentals (LTR), this represents the potential earnings for property managers is also 40-70% higher or more depending on the management fee. STRs represent a lucrative avenue for property managers to explore. This higher revenue comes in large part due to dynamic pricing. The flexibility to alter pricing according to seasonal demands, local events, and weekends provides property managers with a unique tool to maximise returns. If leveraged correctly, it can greatly boost earnings. MadeComfy Pro has a team dedicated to using data-driven insights to manage dynamic pricing and ensure maximum revenue for owners, and removes the cost of managing pricing and the cost of dynamic pricing tools for MadeComfy Pro Partners.
Cost of Tenant Management The transient nature of STRs means fewer long-term tenant disputes or complications. Property managers can avoid potential legal fees, eviction processes, and prolonged vacancies that come with problematic long-term tenants. It is, however, important to have a team in place to manage guest support and screening. With MadeComfy Pro, all guest management is done by our in-house 24/7 guest support team including guest ID verification, payment, pre and post stay enquiries, and claims. Completely eliminating the cost of tenant management for property managers.
Embrace Technology for Operational Efficiency To manage STRs efficiently, property managers would benefit from embracing technology – from utilising AI-driven dynamic pricing tools to employing property management software that facilitates easy communication with guests and streamlines operational tasks. While all these tools can be a large expense, MadeComfy Pro allows partners to tap into all these tools as part of the partnership, reducing the cost for partners.
Invest in Your Team’s Skills Equip your team with comprehensive training and short-term rental certification. A knowledgeable team is essential for delivering exceptional guest experiences and ensuring your business thrives. MadeComfy Pro provides ongoing training for your team to navigate the differences between short and long-term property management.

Property managers looking to dive into or expand within the short-term rental market, the potential benefits are vast.

Discover the untapped potential of the short-term rental market in your region! Find out how much your business can earn with MadeComfy Pro.


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