How to Manage a Holiday Rental Property in Australia – Having a holiday rental property can be very lucrative, but you need to be aware of the pitfalls and manage your property professionally, like a small business.
In this legal guide we cover the pros and cons of holiday rentals, whether you should self-manage your property, how to advertise your property and why you absolutely need to use a Holiday Rental Agreement with your guests.
Legal issues covered in this guide
Click on any of the questions below to jump to that section of this legal guide.
- Should I rent my property as a holiday rental?
- Do I need a licence to rent my property as a holiday rental?
- Should I self-manage my holiday rental property or use a manager?
- How can I keep my property manager fees to a minimum?
- How should I advertise my holiday rental property?
- What do I need to be aware of when advertising my property?
- What is a Holiday Rental Agreement?
- Should I have a Holiday Rental Agreement with my guests?
- What terms should my Holiday Rental Agreement include?
- Should I tell guests my holiday rental Terms and Conditions?
- Should I charge a security deposit?
- How much should my security deposit be?
- What are my rights to charge guests for damage they cause?
- When am I required to give guests a refund?
- What if I accidentally take two bookings that overlap?
- What type of property insurance do I need?
If after reading this guide you still have a question, get in touch as we’d love to keep adding your questions to this comprehensive guide.
Should I rent my property as a holiday rental?
If you own an investment property and want to rent it out, you have two choices:
- Rent it out as a long-term residential property, or
- Rent it out as a short-term holiday rental property
In general, “short-term” means the longest you can rent out your property is for around 6 weeks. The legislation varies by State and Territory, so do check your local restrictions. Each rental option has its pros and cons.
In the case of a long-term residential property, once you’ve found a tenant and agreed the monthly rent you have certainty of income (unless they stop paying rent and need to be evicted). But you also have strict residential tenancy legislation, covering the tenant’s rights and your obligations as an owner, that must be adhered to. These include:
- How much rent and security bond you can charge
- Where and when you must lodge the security bond
- When you may apply the security bond to any damage caused
- What maintenance and repairs must be carried out, and
- How much you can charge for water, electricity, gas, etc.
In the case of a short-term holiday rental, you have a lot less security of income. However, you avoid the onerous residential tenancy legislation. As long as you meet the Australian Consumer Protection regulations, you will find you are much less restricted in how you manage your holiday rental property.
Do I need a licence to rent my property as a holiday rental?
No, you do not need a licence to rent your house/apartment as a holiday rental property. Licences are only required by letting agents, but not by individual property owners.
If your property is in NSW and you are engaging an agent or a broker to manage your property, they must have a licence. In Victoria, agents who only manage short-term holiday rental properties (less than 90 days) don’t need to have a licence. The other States and Territories are less strict and some have no requirements.
You should make your own enquiries locally to ensure you are compliant.
Should I self-manage my holiday rental property or use a manager?
Source: Deloitte/Access Economics ‘Economic effects of Airbnb in Australia 2017’
Once you’ve decided to rent out your property as a holiday rental, your next decision is whether you’ll self-manage the property or hire someone to do it for you.
If you do not live near your holiday rental property you’ll probably need to hire a manager. You can either choose a professional real estate/property management company or find an independent property manager. When choosing a property management company or property manager be sure to do your research. Ensure they have a good reputation and competitive fees.
Some property management companies charge large fees for limited duties – and this will quickly eat into any profits your holiday rental property makes. Most management companies have a base charge of 18-20% of rental revenue, with additional fees for linen, call outs, advertising, etc. These can quickly add up and turn your holiday rental property into a break-even or loss-making proposition.
How can I keep my property manager fees to a minimum?
A cheaper alternative to a property management company is an independent property manager, someone you know or a local resident found through an advert. If you don’t know them personally, ensure you check references and their experience. You might be lucky and have a hotel management school or tourism course taught locally. Approach them for a recommendation or offer to provide one of their students with some job experience.
To save further management fees (and for your own comfort) you can also choose to manage the property bookings yourself. This will involve advertising online, providing quotes and collecting rents and security deposits. In our experience, you’ll save substantial management fees by hiring an independent property manager and then managing some of the duties yourself.
But make sure you have a clear agreement with your property manager. Agreeing a list of their duties and responsibilities in a professional contract is a very good idea. This will help avoid misunderstandings and ensure you have a great relationship with your manager.
If you need a simple-to-use Property Manager Contract then get in touch with us.
How should I advertise my holiday rental property?
Thanks to the Internet there are quite a few effective and inexpensive advertising options now available. Search for holiday rental websites that cover your area and compare advertising rates, the number of listings and how the website ‘ranks’ for online searches. Some websites charge a ‘one-time’ or annual fee to advertise, others charge nightly fees for successful bookings.
While you’re checking holiday rental websites, don’t forget to check your nightly and weekly rates with other similar properties in your area. Make sure you’re competitive.
Whichever holiday rental website you decide to use, your property advertisement needs to be very clear and accurate. You have to be careful that your advertisement matches your property specifications and inclusions, so that you don’t breach Fair Trading legislation. Make sure to list any restrictions, such as children, smoking or pets.
The clearer you are, the less issues you will have with misunderstandings or inquiries that require back and forth communication and waste time. You want to ensure you are upfront and open to be able to secure your bookings as quickly and efficiently as possible.
What do I need to be aware of when advertising my property?
The Fair Trading Act and Consumer Protection legislation state that it is illegal for you to make any false or misleading statements to any consumers about your accommodation.
Misrepresenting accommodation in advertising or brochures may be deliberate or accidental but, either way, it is illegal. You must be clear about representing the quality and standard of your property. Ensure the photos of your property are complete and updated regularly and that the description of your property, distances to attractions, transport and shopping, etc. are all accurate.
Also make it clear the number and types of beds and bedrooms you are advertising – if there is a sofa bed in a sunroom, for example, this must be made clear as it is not an actual bedroom.
What is a Holiday Rental Agreement?
A Holiday Rental Agreement is an agreement with your guests that sets out your Terms and clarifies the rules for renting and looking after your holiday rental property. Your guests should sign the agreement and then return it by mail or a scanned copy attached to an email.
For overseas guests, request a photocopy of their passport or other identification document. This is protection for you that they are who they say they are, it is confirmation of their signature on your contract and it may act as a deterrent against any breach of contract or damage to your property.
Should I have a Holiday Rental Agreement with my guests?
Yes, absolutely – this is probably the single most important item in this guide. You need to have a clear and comprehensive agreement with your guests, which includes a clear statement about start and end dates and the price you are charging.
A Holiday Rental Agreement will protect you and your property. It ensures you and your renter are clear on all the terms of the rental, gives them comfort and makes you look more professional. You also have recourse with a Rental Agreement that you may not otherwise have – against damage, destruction, noise or other unfortunate issues that may arise.
Once you have accepted a booking from a guest you have to honour it, subject to any conditions you have outlined to them. You can only change the terms of the booking at a later date if there is mutual agreement between you and your guest.
What terms should my Holiday Rental Agreement include?
Your Holiday Rental Agreement needs to specify a number of items, including:
- Booking dates
- Check-in and check-out times
- Nightly or weekly rate
- Reservation deposit
- Security deposit and terms
- Cancellation policy
- Payment method and terms
- Additional fees for cleaning, utilities, etc.
- Charges for lost keys, swipe cards, remote controls, etc.
- ‘House Rules’ covering smoking, pets, noise, etc.
You need to decide the amount and timing of your reservation deposits and whether these amounts will be non-refundable. The timing of final payments also needs to be specified in the Agreement. If you are charging a security deposit ensure this is clear in your quote to renters. The terms of refund (including timing and basis for return) must also be clearly stated.
If you decide to charge a cancellation fee this must also be communicated prior to accepting any booking. Both the amount and terms surrounding the fee must be fair and reasonable, or it may be considered an ‘unfair contract term’ and disputed.
In addition, did you realise that, depending on the wording of your agreement, you could be subject to the Residential Tenancy Act of your State or Territory? This is bad news. You’ve heard of all those eviction restrictions landlords have? Those are in the Residential legislation. You don’t want to be covered by those.
In Victoria, for example, just by using the term ‘tenant’ in your holiday rental agreement, you may be subject to the Residential Tenancy Act and end up with additional legal requirements that you did not foresee. So get a professionally written Holiday Rental Agreement and use it with every guest.
Should I tell guests my holiday rental Terms and Conditions?
Yes, you need to make all your Terms and Conditions clear in your online advertisements. In particular, cancellation fees and security deposits, along with the conditions associated with them, need to be disclosed and explained. You also need to list any additional costs that are not included in the nightly/weekly rental fee, such as departure cleaning fees, wi-fi, utilities, etc.
A transparent approach to all your Terms and Conditions will help avoid any possible disputes. And remember, a failure to disclose any of these conditions could be regarded as misleading or deceptive under the Fair Trading Act.
In addition, have your ‘House Rules’ clearly posted in your holiday rental property. These are just everyday rules for living in your holiday home – things like taking out the garbage, noise, leaving keys behind, etc. It’s a good way to reinforce good behaviour and further protect you and your property.
Should I charge a security deposit?
Yes, absolutely. But also make it easy for your guests to pay and easy for you to refund at the end of the rental, with minimum transaction fees.
Bear in mind that security deposits made by credit card or PayPal can easily be voided – and usually just after your guest vacates your property. So make sure you take the security deposit in cash or it’s transferred directly to your bank account.
If you have visitors from overseas, make sure you can accept payment in non-Australian currencies. Whatever payment system you choose, ensure you have it set up well in advance to avoid any waiting periods or losing any bookings.
How much should my security deposit be?
The security deposit amount is up to you but it should, at a minimum, cover your insurance deductible. That way, if you need to make an insurance claim you’re not out of pocket. The security deposit should be higher for properties with a greater value or with more inclusions. In addition, consider what other property owners in your area are asking for as a security deposit.
You can never be sure, and accidents do happen, so you need to consider an amount that is appropriate based on the value of your property and your comfort level.
What are my rights to charge guests for damage they cause?
You should make it clear before you accept any booking that any and all damage that a guest may cause, whether accidental or through their negligence, may be charged to them. If you take a security deposit, you are entitled to take any damage out of that amount.
Remember, glasses get broken accidentally and plates get chipped in everyday use, so use your discretion in how much and what you decide to charge guests for. Normally you should charge for more substantial damages or damages that need repair as a result of your guests’ stay. Consider what you would expect to be reasonable if you were a guest in a holiday rental and use that as a guide.
The easiest and quickest way to manage the final inspection of your property is to use a checklist when the guest is leaving. Sometimes items are forgotten or guests move items such as lamps or chairs – having a list ensures you don’t forget to check everything.
Inspections are also best done as close as possible to the guests’ departure, so you can rectify and address any items that have been broken, damaged or are missing.
When am I required to give guests a refund?
A guest has the right to a refund if something has changed in the accommodation promised. For example, if you no longer have a 3 bedroom house and are only able to offer them 2 bedrooms. Or if there is something substantially mis-advertised in your brochure or website, such as an elevator or handicapped facilities that are not available.
If guests change their mind after you have taken their deposit you have no obligation to provide a refund. You don’t need to provide a refund if the customer does not like the accommodation or finds cheaper accommodation elsewhere and cancels their booking.
In addition, you cannot be held responsible for external environmental conditions which are outside your control such as rain, wind, lack of sun or snow. This is all part of going on holiday and if a guest decides to cancel their accommodation on this basis, they are not entitled to a refund.
To be safe, ensure your guests understand your Terms and make your cancellation fees and Conditions clear in advance.
What if I accidentally take two bookings that overlap?
When you agree to a booking and accept a deposit you are essentially making a contract with your guest. You have to honour this agreement, just as you would with any contract. After all, you are expecting your guests to honour their booking obligation and they expect the same from you.
If you have made an error, you are obliged to fix it and put the guest in the same or a similar position so that they are not disadvantaged. You will need to try and find similar accommodation and/or compensate them for any difference. You should let them know immediately upon realizing your error and make all efforts to rectify the situation.
What type of property insurance do I need?
Holiday Rental Property Insurance is not the same as Home and Contents Insurance or Landlord Insurance. And if you try and claim for damage by your holiday rental guests under ‘normal’ property insurance, your insurance company will probably reject your claim!
You need to have specific Holiday Rental Insurance to cover you for damage to your property while rented to a holiday rental guest. There are many insurers who offer Home and Contents or Landlord Insurance, but there are only a few insurers in Australia who offer short-term rental or Holiday Rental Insurance. So be careful and check your insurance policy.
And most insurance policies require you to have a Holiday Rental Agreement with your guests too. So don’t cut corners, cover yourself and use a Holiday Rental Agreement.
We hope you found this legal guide on How to Manage a Holiday Rental Property helpful.