There are several factors that contribute to the growth of the segment of apartments for rent, such as looking for new investment products by institutional investors, the growing mobility of the society, and the gradual breaking from the stereotype of the need to have one’s own flat. If you have or want to buy an apartment for rent, you will face a dilemma — a short- or long-term rental? Agata Karolina Lasota, the owner of Lasota Business Consulting, dispels such doubts in the interview given to Prestiż. Agata, let’s be specific — short- or long-term rental?
When the market of private apartments for rent was only developing and was an emerging market, the short-term rental, mostly overnight to tourists, was very profitable. Today, however, the market is highly saturated and we are coming to a critical mass. The occupancy rate of such apartments never reaches 100% and is usually much lower. What is more, it is decreasing annually, because the competition on the market is getting stiff. The scales are turning in favour of long-term rental, in particular in the segment of premium apartments, at very good locations and of a high standard.
However, PLN 300-400 per night makes an impression…
But we need to keep in mind that the season lasts for 3-4 months. After the season, it is difficult to get high occupancy, and prices need to be lowered, often even halved. A permanent tenant who pays high rent regularly and cares for a flat is a more profitable option. In addition, you have a contract with a tenant, rather than just rental regulations. Please remember that short-term rental is time consuming and is bound with higher service costs. The turnover of tenants is very high, an apartment calls for refurbishment quickly, and you need to think of delivering the keys, towels, changing linen, and cleaning. These are your costs, and if you outsource the management of your apartment from a specialist firm, you need to share your profit with it. If you add service charges, which are born by the owner, as well as tax, you are left with about 40% of revenue in your pocket. And you need to consider that today tax authorities are getting stricter with respect to accounting for profit from rent — they do not allow a fixed tax of 8.5%, instead imposing 18% or 32% tax.
Nevertheless, people are still buying more and more apartments for rent, and there is a growing number of companies that manage short-term rentals.
There is demand and there is supply, but only and exclusively a well-thought-out investment project that is properly calculated can succeed. You have mentioned companies that manage real estate for rent. The larger ones often dictate their own terms and conditions, which are hard to accept for investors, while smaller firms appear and disappear. You buy an apartment and furnish it so that it hits the market before holidays. Next, you outsource its management from a firm, and there is some turnover during the holiday, but after the season the wind is howling in the corridors and your contractor disappears from the market. There are plenty of such stories.
We live in the TriCity and cannot complain about the lack of tourists. Their numbers are growing also after the season? Are we not dramatizing the situation?
Short-term rental depends largely on factors that affect the economic situation, such as the weather, the tourist season, large events in the area, etc. However, credit instalments need to be paid regularly, and the revenue on rental can largely depend on the season. It is true that there is no shortage of tourists in the TriCity, but it is worth looking at other cities, because we are following in their footsteps. For example, Spain is a tourist paradise. As a result of the boom on the building market, real estate was constructed and bought on a large scale, mostly on credit. In 2007, when the crisis erupted, the revenue on rent was not sufficient to repay credits, even though the season in Spain lasts the whole year.
You have said that when planning the purchase of real estate for rent one needs to plan and calculate everything. What does it mean?
From the investor’s point of view it is essential to remember that a created offer of short-term rental is mostly an alternative to hotels rather than to traditional rental. In view of all the factors I have mentioned, it is definitely advisable to choose long-term rental, in particular for businesses and institutions, including large international corporations. Thanks to this, we can relax and generate higher revenue from rent. I need to emphasize that my agency is proud of the effectiveness of its activities in the long-term rental of premium apartments for the business sector, where it is at 92.6%.
AUTHOR: MAX RADKE PRESTIGE 90 03/2018
http://prestiztrojmiasto.pl/magazyn/90/biznes/pulapki-wynajmu-krotkoterminowego
