Short Term, High Yield

3/07/2018

The average rental yield in Sydney in the second quarter of 2018 was 3.2%, reports CoreLogic. Nine hundred kilometres to the south in Melbourne, the story gets worse, with rental returns for landlords averaging just 2.93%. 

The extremely low yields on offer in Australia’s biggest capital cities are an increasing turn-off for landlords in these markets. Fortunately, according to short-term rental (STR) specialist MadeComfy, investors don’t need to make do with paltry returns. “With our investors, we’re seeing yields of 6–8% in Sydney, which is difficult under other rental scenarios,” explains Mike Johnson, chief sales officer at MadeComfy. 

“In Sydney, you’re considered to be doing well with a 3–4% return. We’re achieving double this rate for our clients.” 

MadeComfy’s strategy is simple and well-refined, blending the power of big data – which enables it to dynamically price the nightly rate to maximise the returns the property can generate in a given suburb – with modern styling and furnishing that short-term guests love. 

“When an investor comes to us with a property, or when they’re looking to buy an investment property, we will look at the suburb, the actual street and what’s around it in terms of proximity to cafes, shops, parks, beaches, public transport, and all of the other amenities that short-term renters are looking for,” Johnson says.

“We then use our database of how properties have performed in that area, in terms of supply, occupancies and returns. We use that data and put together a proposal for a client that outlines exactly what we can do for them.” 

Specialising in Sydney and Melbourne, MadeComfy has recently branched out into the Brisbane property market. 

It is also extending its services to developers, after recognising that the data and insights MadeComfy creates could benefit property investors on a larger scale. 

“The same reasons that people come to us when they’re looking to buy an individual investment property apply when you have a development – and it comes back to the data,” Johnson says. 

“We can give advice and strategy around everything from working with strata and by-laws to choosing the streets that have the highest appeal with holiday-let renters.”

He points to a recent collaboration with an investor who owned a pair of two-bedroom apartments in the Northern Beaches. With MadeComfy’s guidance, the homes were renovated to include modern fittings, fixtures and appliances, along with keypad locks. 

“When you think about it, we carry around in our pocket one of the oldest pieces of technology of all time,” Johnson says. “Our grandparents carried around keys, and they’ve never been updated! If you lock yourself out and you have a key lock, you need a locksmith to come out, and it can cost a bomb. A keypad entry eliminates all of that and provides flexibility and safety.”

MadeComfy also recently partnered with a developer on a project in Coogee Bay. The complex, which was almost complete when MadeComfy began consulting with the developer, comprised of eight separate apartments. 

“When we researched the local area we discovered there are only very few short-term rental listing offers in the vicinity of Coogee, and they’re pretty often full,” Johnson says. 

“Coogee is an attractive area for tourists, and there’s quite strong demand all year round, so we were confident recommending that the client move forward with a short-term letting strategy.” The property Investor bought the apartments and immediately handed full management over to MadeComfy. With its ‘set and forget’ strategy, MadeComfy provides the styling and furnishing of the apartments, online portal listings, tenant booking and guest welcoming services, and arranges cleans between stays. 

“We’ve traditionally worked with people on individual properties, and now we’re seeing more and more developers and owners of multiple properties take an interest in this type of strategy,” Johnson says. 

“They contact us saying, ‘We never considered short-term rentals before, but maybe we should?’ Developers can really see the full range of benefits, as well as the increased yield; they’re also getting more control,” he says. 

“With the short-term rental option, homeowners can access properties and maintain them on a more ongoing basis, which minimises wear and tear.“

While an STR strategy may not suit every property, Johnson adds that it is “accessible to all types of developers and investors”. 

“Everyone has got that one investment in their portfolio where it’s ticking along OK but it’s not performing brilliantly, and so you’re not sure what to do with it,” Johnson says. 

“Before you make any snap decisions to sell, you could look at holiday letting. By using a short-term rental strategy, you could potentially get more yield and help increase your cash flow in the short term.”

CASE STUDY:  COOGEE PROPERTY DEVELOPER’S HIGH-YIELD HOME RUN

One of Sydney’s first exclusive short-term rental apartment blocks, this property has eight apartments, ranging from a studio to 2.5 bedrooms, and is located in Coogee.  

Project developers partnered with MadeComfy as it is the short-term rental market leader in Sydney and as such has the most credible experience, background and team.

The investor handed full management of the property over to MadeComfy; he benefits from its dynamic pricing structure, which ensures he is getting top dollar for his property.

The investment is generating a high yield in Sydney’s current low-yield market, as the financial returns far outpace returns of other rental options.

Mike Johnson

is chief sales officer

at MadeComfy