Short-term rental finance refers to the home loans and investment finance products used to purchase properties intended for platforms like Airbnb, Stayz, Booking.com, and VRBO. As the short-term rental market has grown dramatically across Australia, more investors are seeking to purchase properties specifically for holiday letting rather than traditional long-term tenancies.
While the loan products used for short-term rental properties are fundamentally the same as standard investment home loans, lenders assess these applications differently. The variable nature of short-term rental income, seasonal fluctuations, and regulatory considerations all factor into the lending decision. Understanding how lenders view these properties is crucial for securing finance on competitive terms.
The Surf Coast, Great Ocean Road, Mornington Peninsula, and regional Victoria more broadly are popular short-term rental markets. Properties in these areas can generate significantly higher returns during peak holiday periods compared to traditional long-term rentals, though they also experience quieter periods during the off-season.
One of the biggest challenges with short-term rental finance is how lenders assess the rental income for loan servicing purposes. Unlike a traditional investment property with a fixed lease providing guaranteed income, short-term rental income varies based on occupancy rates, nightly rates, and seasonal demand.
Conservative income recognition: Most lenders take a conservative approach to short-term rental income. While a property might generate $50,000 per year in gross Airbnb income, the lender may only recognise 50% to 80% of this figure for servicing calculations. Some lenders will only assess the property at the equivalent long-term rental value, ignoring the short-term rental premium entirely.
Evidence requirements: To maximise the rental income recognised by lenders, you should provide at least 12 months of Airbnb or platform booking history, a tax return showing declared rental income, a professional short-term rental appraisal from a local property manager, and evidence of forward bookings where available. Properties with an established track record of strong occupancy are viewed much more favourably than newly listed properties.
Lender-specific policies: Each lender has different policies regarding short-term rental income. Some major banks will assess the property at the standard long-term rental value only, while certain non-bank lenders have more flexible policies that recognise a greater proportion of short-term rental income. Your mortgage broker can identify which lenders offer the most favourable assessment for your situation.
Before purchasing a property for short-term rental purposes in Victoria, it is essential to understand the regulatory framework that applies. Victorian regulations have evolved significantly in recent years as governments seek to balance the tourism benefits of short-term rentals with housing availability concerns.
Registration requirement: All short-stay accommodation providers in Victoria must register their property on the Business Victoria short-stay register. This applies to any property rented for periods of less than 28 consecutive days. Registration is free and can be completed online, but failure to register can result in penalties.
Council restrictions: Some Victorian councils have additional planning overlays or local laws that restrict or regulate short-term rentals. In popular tourist areas like the Surf Coast Shire, there may be specific requirements around the number of days per year a property can be let on a short-term basis, noise management plans, and parking provisions. Always check with the relevant council before purchasing.
Owners corporation rules: If you are purchasing an apartment or unit in a strata complex, the owners corporation may have bylaws that restrict or prohibit short-term letting. These rules can significantly affect your ability to operate the property as a short-term rental, so review the owners corporation rules carefully before committing to a purchase.
Short-term rental properties have different cost structures compared to traditional long-term rentals. Understanding these costs is essential for accurate financial projections and loan servicing calculations.
| Expense Category | Short-Term Rental | Long-Term Rental |
|---|---|---|
| Property Management | 18-25% of revenue | 6-8% of rent |
| Cleaning | $80-$200 per turnover | End of lease only |
| Utilities | Owner pays (included in rate) | Tenant usually pays |
| Furnishing | $10,000-$40,000 setup | Usually unfurnished |
| Wear and Tear | Higher (frequent turnovers) | Lower (stable occupancy) |
| Insurance | Specialist STR policy needed | Standard landlord policy |
Rachel purchased a three-bedroom house in Torquay for $850,000 with the intention of operating it as a short-term rental during peak periods while using it personally in the off-season. She contributed a 20% deposit of $170,000 and secured an investment loan at a competitive rate. The property generates approximately $55,000 per year in gross Airbnb income (averaging 65% occupancy), compared to an estimated long-term rental of $32,000. After accounting for management fees, cleaning, utilities, and maintenance, her net rental income is approximately $35,000, still $3,000 more than the long-term rental equivalent, with the added benefit of personal use during quieter months.
Short-term rental properties have unique tax implications that differ from traditional investment properties. Understanding these before you purchase can help you make better financial decisions.
Income declaration: All income earned from short-term rentals must be declared in your tax return. This includes the nightly rate, cleaning fees, and any other charges. Platform providers like Airbnb report your earnings to the ATO, so accurate record-keeping is essential.
Deductible expenses: You can claim deductions for expenses directly related to the short-term rental activity including property management fees, platform commissions, cleaning costs, utilities, insurance, repairs and maintenance, depreciation, and loan interest. However, if you also use the property for personal purposes, you must apportion expenses between rental and personal use periods.
GST considerations: If your short-term rental income exceeds $75,000 per year, you may need to register for GST. This is a common threshold that catches some successful Airbnb operators by surprise. Commercial residential premises (hotels, motels, serviced apartments) are typically subject to GST regardless of turnover, so it is important to understand how your property is classified.
Not every investment property makes a good short-term rental. Location, property type, and local market dynamics all play a crucial role in determining whether a property will generate strong returns on platforms like Airbnb.
Location: Properties near beaches, tourist attractions, event venues, or CBD areas tend to perform best. On the Surf Coast, proximity to the beach and town centre is paramount. In Melbourne, inner-city apartments near restaurants, entertainment, and public transport attract business travellers and tourists. Regional properties near wineries, national parks, or ski fields also perform well.
Property features that drive bookings: Guests on short-term rental platforms prioritise features such as outdoor entertaining areas, swimming pools or spas, modern kitchens and bathrooms, air conditioning and heating, fast WiFi, parking, and pet-friendly policies. Properties with unique character or standout features consistently attract higher nightly rates and stronger occupancy.
Bedroom count matters: Three and four-bedroom properties tend to generate the best returns in holiday markets because they cater to families and groups who split the nightly cost. Studio and one-bedroom apartments work well in CBD locations for couples and business travellers. Understanding your target guest demographic helps you choose the right property type.
Before purchasing a property for short-term rental, research the existing Airbnb market in the area using tools like AirDNA or Inside Airbnb. These platforms provide data on average nightly rates, occupancy rates, and revenue potential for specific locations. This data will help you create realistic financial projections and support your loan application.
Regulatory changes: Short-term rental regulations are evolving across Australia and could become more restrictive in the future. Some jurisdictions have already introduced caps on the number of days a property can be let on a short-term basis. Any future regulatory changes could significantly impact your rental income and property value.
Seasonal income variability: Unlike long-term rentals with consistent monthly income, short-term rental income can be highly seasonal. A Surf Coast property might be fully booked over summer and Easter but experience low occupancy during winter. You need to budget for mortgage repayments during quiet periods when income may not cover costs.
Higher management burden: Even with a professional property manager, short-term rentals require more active involvement than long-term rentals. Guest communications, reviews, maintenance between bookings, and competitive pricing strategies all require attention. Factor in the time commitment when assessing the overall return on investment.
Insurance complexity: Standard landlord insurance does not cover short-term rental activities. You need specialist short-stay accommodation insurance, which is typically more expensive and may have different coverage terms. Airbnb provides some host protection, but this should not be relied upon as your primary insurance.
Deciding between short-term and long-term rental strategies involves weighing up several financial and lifestyle factors. Here is a detailed comparison to help you make an informed decision.
Gross income potential: Short-term rentals in prime locations can generate 20% to 50% more gross income than equivalent long-term rentals. A property on the Surf Coast that might rent for $550 per week on a long-term lease could generate $300 to $500 per night during peak summer periods. However, this premium must be weighed against higher operating costs and vacancy periods during the off-season.
Net income comparison: When you factor in the higher costs of short-term rental management (18-25% management fees vs 6-8%), cleaning between guests, utilities, furnishing costs, and higher maintenance, the net income advantage narrows. In many cases, a well-managed short-term rental will still outperform a long-term rental, but the margin is smaller than the gross income figures suggest.
Flexibility and personal use: One significant advantage of short-term rental properties is the ability to block out dates for personal use. This is particularly attractive for properties in holiday destinations where you might want to use the property during school holidays or long weekends. Long-term rental properties do not offer this flexibility, as the tenant has exclusive possession for the lease term.
Capital growth considerations: The property’s capital growth potential should be the primary driver of your investment decision, regardless of the rental strategy. A property in a high-growth area with moderate rental returns will typically outperform a high-yielding property in a stagnant market over the long term.
If you decide to proceed with a short-term rental investment, there are several steps you can take to maximise your returns and minimise problems.
Professional photography and listing: High-quality photographs are essential for attracting bookings on platforms like Airbnb. Professional photography typically costs $200 to $500 and can significantly increase your booking rate and nightly price. Your listing description should highlight unique features, local attractions, and practical amenities.
Dynamic pricing strategy: Use dynamic pricing tools like PriceLabs, Beyond Pricing, or Wheelhouse to automatically adjust your nightly rates based on demand, seasonality, local events, and competitor pricing. These tools can increase your revenue by 10% to 20% compared to static pricing, as they capture higher rates during peak demand and reduce rates to maintain occupancy during quieter periods.
Professional management vs self-management: Decide whether you will manage the property yourself or engage a professional short-term rental manager. Self-management saves on fees but requires significant time for guest communications, check-ins, cleaning coordination, and maintenance. Professional managers handle everything but charge 18% to 25% of gross revenue. For interstate investors or those with limited time, professional management is usually the better option.
Have a backup plan: Always have a plan B for your short-term rental property. If regulations change, occupancy drops, or market conditions shift, you should be able to convert the property to a long-term rental or sell it without significant financial stress. This means ensuring your loan repayments are affordable based on the long-term rental value, not just the short-term rental income.
Yes, you should be transparent with your lender about how you intend to use the property. Most lenders will still approve an investment loan for a property that will be used for short-term rental, but they need to know in order to properly assess the loan. Failing to disclose the intended use could constitute a breach of your loan conditions.
Yes, many homeowners rent out spare rooms or their entire home on Airbnb while maintaining it as their primary residence. This does not typically affect your owner-occupied home loan status as long as the property remains your principal place of residence. However, the rental income must be declared in your tax return and you should check your home insurance policy covers hosting guests.
Both locations can work well but have different demand patterns. Coastal properties like those on the Surf Coast tend to have strong seasonal peaks during summer and school holidays but quieter winters. City properties attract more consistent year-round demand from business travellers and tourists. Your choice should align with your financial goals, risk tolerance, and whether you also want personal use of the property.
Most lenders treat short-term rental properties the same as standard investment properties for LVR purposes, allowing up to 80% LVR without LMI or up to 90% with LMI. However, some lenders may impose lower maximum LVR limits for properties in certain locations or of certain types. Your broker can advise on which lenders offer the most flexible LVR policies.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
