The ongoing pandemic has had dramatic impact on property markets. The rental market too has not been left unscathed - current rentals have not just slowed to a crawl, but have in fact ground to a halt and even contracting.
And rents have been falling as tenants struggle to pay their dues. Tenants too are looking to move into similar-sized properties at lower rents.
The landlords are now caught in a rut, unable to find an escape out of the situation. The property market has suffered over the past five years after a period of expansion, as there have been dramatic changes in people’s mindsets and something unprecedented for such a short time period.
Fear of more value dip
While property prices have fallen, it may not have hit the bottom. As they stand now, values threaten to fall further, leaving the landlords more worried as many had invested in the hope of generating sustainable returns by now.
The challenges in getting out when prices are low may prove to be a bit daunting, let alone the risk of having to find new tenants if the current one heads for the exit. Plus, there are the possible legal hassles.
While opting for a holiday home, do not be fooled by unrealistic projections. This category isn’t into magic solutions. But the landlord can be reasonably sure that the property as an asset will not depreciate and still be able to get a high single-digit return.
Most importantly, the possession of the property always remains with the owner - there is no need to worry about cheques not going through or tenants not leaving. On average, expect between 15-40 per cent more than what long-term rentals can fetch.
Ensure selecting the a management company to work with, do the homework. There are many good ones and each with its own strength. Visit the office and get to know their team, because they will be handling the guests.
Keep in mind managing holiday homes is a hospitality business and not a real estate game. Ask the question that if you are going on a vacation, would this management company be able to make the stay a comfortable one.
Don’t go by the lowest quote
Also, visit some of the other properties they manage. It’s not the size of the property, but about the experience it can generate for guests. This is what will ensure you achieve a high yield.
Also beware of property managers charging too little. Ask the question: If they are not earning enough, what will they put back in the business to ensure the guest has a comfortable time?
Work on a good income sharing ratio, and remember that the more the property earns the better the management company does as well. Good companies will use high quality amenities, stock up the kitchen and other special surprises for guests, which all result in more earnings.
Finally, holiday homes give landlords extreme flexibility. It allows them to have the option to sell the property if and when a right offer comes by. Earn more than a long-term rental contract, and when possible, use the property for own use. What is better than having a beach apartment to use for a few weekends each year with no expenses to bear?
- Vinayak Mahtani is CEO of bnbme.