New Zealand has an abundance of natural beauty - pristine beaches, crystal-clear lakes, untouched wilderness and everything in between. It’s no wonder why people come here from all over the world to enjoy what this stunning country has to offer! Holiday makers from New Zealand and abroad spend lots of time and money visiting our best spots.
Owning a bach is often thought of as the Kiwi dream - an investment in lifestyle and a place for family and friends to make lasting memories; a happy place to escape the bustle of everyday life. However, due to the popularity of short term rental sites such as AirBnB, and the availability of quality holiday home management options such as Bachcare, investing in a holiday home can be more than an investment in lifestyle - it also presents a significant financial opportunity if done correctly.
Here we explore the ins and outs of investing in a holiday home rental: why holiday homes in NZ? Things to consider when investing in holiday homes, where to invest, how to attract guests, and some common issues that holiday home investors face.
So why should you invest in a holiday home in New Zealand?
Tourism is booming, New Zealand is a desirable place to visit, and people need a place to stay. Last year, total tourism spend increased 12.2% from that of 2015. The largest growth area was from international visitors. Tourism is our largest export industry, employing 7.5% of the NZ workforce, and directly contributing almost $13 billion to our economy (2016). By owning a holiday home in the right place, you can benefit from the tourism boom and have a nice bach in a desirable area. Many of our most beautiful spots aren’t suitable for hotels and commercial accommodation, which naturally leads to increased demand for short term rentals in the form of holiday homes.
What to consider when investing in holiday homes in New Zealand:
Where Should You Invest When Considering the Short Term Market?
The first rule of real estate - Location, Location, Location - also applies to short-term holiday home rentals. You need to invest in a location that people already want to visit. More popular locations have higher occupancy rates and the ability to charge higher prices.
There are two types of holiday homes: seasonal and year-round. Some locations are booked heavily during a specific time of the year, whilst quiet during the rest of the year. You may see 90% of the bookings come over just a few months like in Ohakune. You will need to make sure that you are making enough money during the “high season” to pay for your expenses during the rest of the year and to align with your goals.
Rentals that produce regular bookings year round provide a more stable cash flow, however the cost of entry (so to speak) will be much higher (e.g compare real estate prices in Queenstown with the one season market of Ohakune). Additionally, even with so-called year-round properties, some months are likely to be more popular with guests than others. If you are just starting out as a holiday home investor, it may take a few years before you know what a typical cash flow from one of these properties should look like. A reputable holiday home management company should be able to give a good steer and indicator on this though. At Bachcare for example, we have 14 years worth of stats on financial returns and occupancy across many areas of New Zealand.
When you are researching where to invest, some important factors to keep in mind include:
Why do people visit this area? For example, Whangamata is well known for the beach hop, stunning summer weather and fishing.
Which natural attractions are guests most likely to be interested in? Whilst beachside towns like Whangamata boom during summer, other areas such as Queenstown/Wanaka and Rotorua have a range of natural attractions that bring in different types of guests year round.
Are there annual events that bring a predictable influx of visitors? For example, Gisborne hosts the Rhythm and Vines festival, and Rotorua hosts Crankworx for mountain bikers - this tends to result in high occupancy during these times.
How far away are the main cities/towns? This will be a good gauge of domestic visitors - you can reasonably expect people from Auckland and Whangarei to visit Paihia, but visitors from Wellington are far less likely to travel so far.
How much land is available? Are there geographical barriers to further development? In areas such as Rotorua and Queenstown, there is a very limited supply of developable land due to the nature of the terrain. In theory, this should lead to larger capital gains if the place remains desirable to visit in years to come.
If you are planning on doing maintenance and upgrades on the property yourself, it might be worth considering how far away the house is from where you live.
Personal use? Is it somewhere you would enjoy having the option of staying at? One of the major benefits of short term vs long term rental is not just a higher potential yield, but also flexibility for personal use!
How Will You Attract Guests?
A holiday home, no matter how beautiful the surroundings, will not book guests simply by its presence. You will need a strategy for attracting paying guests in an increasingly competitive market. Here’s a few ideas...
Create a website and marketing campaign for your property.
List your property yourself on websites like Airbnb, Holiday Houses and Booking.com
Use a Holiday Home Property Management Company to do it all for you.
The problem with doing your own marketing is that it can be a very inefficient use of your time. You wanted an investment, not a job. Additionally, if you handle all of the marketing yourself, you will also need to manage the booking process, check-in, check-out, cleaning, and dozens of other tasks once you finally manage to attract some guests. This may be easier if you live locally, however, it can put a handbrake on your ability to move around, and do what you want with your time.
Listing your holiday home on sites like Airbnb, booking.com and Holiday Houses can be useful to expose your property to a wider audience of interested viewers, and generally leads to more bookings. However, there is more to it than “set and forget”. You cannot just create a profile and wait for the money to come pouring in. The homes that get the most bookings have actively managed profiles. Plus, you will still need to facilitate much of the upkeep and logistics of your holiday home - welcoming guests, tending to their requirements, cleaning, maintenance, reviews etc. Add to this that in the above example, you’ll be managing 3 separate calendars which can cause many scheduling headaches, cause cancellations if double bookings are made and that may negatively impact your review scores on sites like Airbnb, which in turns can impact your future booking success and occupancy. It can be done, but at Bachcare we have worked out it is typically 5 hours work per booking across the year.
If you want your holiday home to be more of a passive investment, your best bet is to hire a property management company that specializes in short term holiday home rentals. The best companies will market your investment property on their own website and on sites like Airbnb. Importantly make sure to ask if they have direct feeds to these sites to avoid the juggling multiple calendars issue. They will also handle the check in and check out process, manage cleaning and maintenance, and make sure guests are properly greeted. This is their full time job, and they know all the tricks of the trade to ensure that you get the best return, highest occupancy rate, and happy visitors.
Great property managers will welcome guests on arrival, explain the features of the home, and make them feel cared for. Not only does this lead to customers having a more positive and consistent experience, but it also tends to result in the property being better looked after. Bottom line: it allows you to make sure you are getting bookings whilst keeping your involvement (and stress levels) to a minimum.
Using a property management company that specializes in holiday home rentals will allow you to maximize your ROI and free up your time to scout for other investment opportunities.
Whats your management strategy?
There are a number of ways to go about managing a holiday home:
Self manage, greet guests, clean etc. - you keep 100% of revenue, but do all the work.
Self manage, and employ a cleaner - you keep approximately 90% of revenue, and don’t have to do everything yourself.
Employ a property management company to cover most aspects of the investment - you keep approximately 80% of revenue, and have a relatively hands-off investment.
To be clear when making your decision on the above, it’s much better to steer the conversation to occupancy rate rather than the % revenue you maintain. Obviously one of the benefits of a professional management company is they are experts at gaining higher than average occupancy rates - so 80% of revenue from 150 nights accommodation is far greater than 100% of revenue from 30 nights accommodation when self managing for example.
What type of guest are you looking at attracting?
Holidaymakers come in all shapes and sizes - from high daily-spend visitors that desire opulent surroundings, to young backpackers and students that want a cheap place to have a great time in. When considering which home to purchase, and how you are going to fit it out, it’s important to consider what your typical guest expects. If you spend too much on making the place nice, visitors might not value your efforts. Keep fit-out to a bare minimum, and your guests might be disappointed.
Are you wanting to attract families? It could be worth providing board games for a rainy day, and safely fencing the perimeter for young ones. What if you want to attract large groups (e.g: for the ski season)? Bunk beds would be highly valued, and durable fixtures are less likely to get damaged. Bedding and room configuration is very important, and guests are becoming more and more discerning.
What Issues do Holiday Home Investors Face?
As a first time investor, owning a short-term holiday investment home is not without its challenges. However, as long as you are aware of potential issues you can mitigate or manage the risks.
Some of the most common challenges facing holiday home investors are:
Lack of bookings
Problems vetting guests
Setting the optimal daily rate
Wear and tear on the furniture and property
Disputes with guests (over damage)
Guests are the key to earning a regular return on your holiday home investment. However, by the nature of the business, guests are also the cause of many of the issues:
Lack of bookings
If nobody is renting your home, then it is costing you money to hold. It’s important to troubleshoot what the cause is. Photo quality? The listing description? The rates? Is your cancellation policy too strict? Even the title of your listing - we have seen huge benefits just in a few tweaks to the above time and time again with Bachcare managed holiday homes.
Problems vetting guests
The last thing you want are guests who don’t respect your house. While your property is always at risk when you rent it to strangers, you have two options to manage this risk. You can vet guests yourself or you can outsource this task. The issue with doing it yourself is that unless you have experience vetting guests, you may either screen out too many people and lose revenue or you may be too lenient and allow high-risk guests to rent from you. Property management companies with experience in the short-term rental market already have the skills, systems, and infrastructure to vet your guests.
Setting the optimal daily rate
Pricing your holiday home to get the best return, and the highest occupancy rate is an ever-changing task. Charge too much and your home stays empty; charge too little, and you miss out on extra income. You can look to similar homes in the market for pricing guidance, but unless you have inside information you don’t know if their prices are working.
Wear and tear on furniture and property
Renters will never be as careful as homeowners. There is nothing you can do to prevent your property and the furnishings from getting used and experiencing wear and tear. However, you can make sure the guests are paying for it by setting aside some of each rental fee or cleaning deposit to cover future maintenance and repairs. We recommend setting aside 10% of revenue for maintenance and upgrades.
Severe damage caused by guests
Sometimes with even the best guest vetting, bad things happen. Careless guests may put holes in the wall or flood the bathroom. You can mitigate this risk by ensuring that good vetting systems are in place, making sure you have the correct levels of insurance, and holding reckless tenants accountable for heavy damage through withholding deposits and litigation if required.
Usually, it takes some time to build up momentum, to get enough reviews for guests to feel comfortable booking your property en-masse, and to work out what works and what doesn’t. Often, it isn’t until the 2nd or 3rd year of owning a bach that things really start to ramp up, and returns begin to become apparent. Many families will visit the same bach a number of years in a row, and talk with their friends and family about it. This is hard to quantify, but can lead to higher occupancy rates over time.
Achieve maximum ROI
Investing in a short term rental is a great way to build an additional income stream, accumulate potentially tax-free capital gains, and to have a “happy place” for your family and friends to enjoy on holiday. The best way to ensure you achieve the maximum ROI is to buy the right property and partner with the right property management company, such as Bachcare.
Our New Owner Advisors have years of experience in helping 1000s of Kiwi investors buy holiday homes, or select the best section to build on ready for holiday home success. For a free chat and guidance on what to work on next, arrange a time to speak with one of our advisors today.
Denym Bird is a former digital marketing manager at Tradify, an Auckland Software As A Service Business. He now runs his own Digital Marketing Consultancy.