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.