By Chris Gray
Executive rentals are appealing to many investors because they often attract higher rents. The reason is that they appeal to a niche market: executives who relocate from interstate or overseas for work but don’t want to live in a hotel, nor do they want the hassle of moving their own furniture.
These lessees will often still sign long leases, just as with standard unfurnished properties – and this is the main advantage executive rentals provide: high, consistent rents. In comparison, holiday rentals (which are also high) suffer from the peaks and troughs of holiday seasons.
However, holiday makers are happy to rent a broad range of accommodation, executive lessees often require a higher standard of property and furnishings – and this does come at a cost. Kitting out a property with everything from towels and bedlinen to toasters and plasma TVs isn’t cheap, and this needs to be factored into your calculations before going down that path.
I recently bought a two-bedroom unit with ocean views which, when renovated, cost me about $500,000. I then decided to fully furnish it at a cost of $25,000. If the furnishings last, on average, four years, this would equate to an increased expense of $125 per week ($25,000/4 years/50 weeks).
As the apartment is close to a popular beach, I initially tried to let the apartment as a holiday rental for $250 per night. This was great when the rent was coming in, but terrible when it wasn’t. Based on a 50 per cent conservative occupancy, I could expect $875 per week. That’s a rental return of 8.8 per cent. But there were also the higher property management and cleaning fees and increased wear and tear to consider.
Coming into winter, I decided holiday letting wasn’t the right thing for this apartment, so I then managed to secure it as an executive rental on a 10-month lease at $890 per week. Let’s compare:
|Standard lease||$600/wk||6% rent|
|Holiday lease||$875/wk(50%)||8.8% rent|
|Executive rental||$890/wk||8.9% rent|
Sometimes you need to see what works for you. I was happy to go with my property manager’s recommendation and, of the five apartments I bought, I tested the above strategy on just one.
If you choose the right property and tenant, executive leasing can achieve both high-yield and high-growth property investing – and that’s not something you see too often.
Chris Gray is the Founder of Empire, host of Your Property Empire on Sky News Business Channel, property expert on Channel 9′s MyHome show and Financial Expert on Channel 10s The Renovators.
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