The Short-term Rental Business: To Invest or Not to Invest

If you are about to purchase a property, the property agent will often ask, “Is this for your own stay or investment?”. If you already own several properties, the question you get asked now will be, “Are you renting them out for tenants or short-term stays?”. This is because a new group of tenants has emerged since the arrival of Airbnb – people who stay in your property for a day or a few months.

For decades, renting out a property has been a common practice for owners to make profits through a fixed payment that is typically received each month. However, with the rise of Airbnb, property development is pivoting towards short-term rental business accommodations due to the lack of rental yields despite the abundant supply of properties here. But what is it like hosting a property for short-term rentals? Is it considered a good investment?

Zainal Zikri, Founder of MyRehat shares his perspectives on being a host of various properties in the Klang Valley since 2019:

Source : MyRehat Regalia Residence

How property makes a profit

On one of the properties I’m hosting (a studio unit) in the heart of KL from January to April 2023, I made RM13,208 in those four months via short-term rental targeting travellers, which means RM3,302 of monthly gross income. Taking into account RM1,600 for the rental fee to its owner and RM400 for utilities and other expenses, my net profit is RM1,302 each month.

Example of Earning from January 2023 to April 2023
Monthly gross income	RM3,302
Rental fee to the owner	RM1,600
Utilities and expenses	RM400
Monthly net profit	RM1,302

For this particular property, its market value starts from RM450,000.00 to RM500,000.00.

Source : https://www.iproperty.com.my/financing/mortgage-calculator/

As shown above, the monthly loan repayment for the property is RM1,697. If I rent it out at RM1600 per month excluding maintenance and quit-rent, I will be making a negative cash flow of RM350 a month (based on 90% loan).

But if I buy that property and turn it into short-term stay, then I will be making RM3,302 a month. Minus monthly loan repayment and other expenses, I am still looking at a positive cash flow of above RM1000 instead of a negative cash flow.

Hence, doing a short-term stay business is far more cash-positive for you.

Regardless, below are a few factors to consider when operating this business:

1. Rental rates vary in low and peak seasons

If you have a negative cash flow on a certain period, it does not mean you are set for a loss because as a host, you can increase or decrease the rental rate. This can be based on holidays, festivities, promotions and other contributing influences like adding special amenities or additional packages. It is normal to experience a lower occupancy rate in some months.

On a high occupancy, you can double or triple your average sales which can cover the gap in earnings when business is ‘slow’. As a host, you will also be able to promote properties that need an extra push on various popular platforms. Typically, December will be the month your sales triple than usual!

• Short-term rentals provide more flexibility than fixed-term rentals

Compared to fixed-term rentals where a tenant pays the same amount of money to a landlord each month, short-term rental hosts have the freedom to mark rental prices up or down each day. This means that a host can earn a more lucrative income than fixed-term rentals even without having a customer on a daily basis. Bear in mind when you first venture into the business, you won’t automatically make great sales as you need time for people to know your property and for you to get positive reviews. In the accommodations business, REVIEWS MATTER.

For example, a property in Petaling Jaya with the current average rental rate of RM1600 a month that I’m operating is only 60% occupied for the year and I gained a gross profit of almost RM40,000.00 in 2022 for the whole year. If this property was traditionally rented (fully furnished), I would only be making a total income of RM19,200. This means it is more than 100% return for the year! 

1. Boost your property value

When you choose a property at a strategic location, you already create a demand for staying in it, regardless of short or long-term rental. But for the above property in Petaling Jaya, it is far better to do short-term rental than long-term so you can make more money! In turn, when you decide to sell it, you have substantial data to show why your property is better than the other 300 units in the same building. You can sell it quicker and demand a better selling price as well.

While short-term rental accommodation is a good business, choosing the right property is crucial. In the hospitality business, important aspects such as property reviews and your services for your customers are significant too. Bad reviews and poor services will kill a business no matter what industry you are in.

MyRehat’s Key Services

Ever since I started to pursue my passion in the short-term rental business four years ago, I have had a fair share of ups and downs in the field but heartened to have survived all COVID-19 lockdowns in the previous years. Today, MyRehat is continuously striving to become the one-stop platform for local businesses to come together and offer an authentic travel experience for customers through curated accommodations, foods and activities.

Source : MyRehat Opus Residence

Besides operating vacation rentals, MyRehat also plans to sell properties which are proven to be making good short-term rental incomes. If you are one of them and want to know how to find properties suitable for short-term rentals or Airbnb, feel free to reach out to us for further insights and consultation.

MyRehat looks forward to forging synergistic collaborations and welcomes new opportunities to turn properties into profits.

Are you intrigued yet?

If so, contact MyRehat for further discussions on how we can partner up on this journey.