The impact of COVID-19 on the fund
COVID-19 will impact short term rental income significantly in some areas until the nation recovers.
This begs the question: can it be reasonable to invest in residential property to be used as short term rental during the crisis?
It all depends on the price paid for the property.
The impact of a reduction in income can be negated by purchasing properties at even modestly lower than pre-covid prices.
Let’s have an example. We estimated a gross fund return of 9% per year, based on our experience with short term rentals. Lets take an extreme case - if this income goes to *zero* for a year from the time of our first settlement (unlikely before 1 October 2020), before returning to pre-covid levels in a recovery in late 2021.
To achieve the target fund return, we would then need to purchase a property at 9% less than pre-covid market price.
However, zero rent is unlikely, and having fewer guests also means we’ll save some costs - lower income means less cleans, power & rental manager fees.
If the COVID-19 impact on short term income is instead a 50% for a year, we would instead need to purchase a property that is 4.5% cheaper than pre-covid to achieve target return of 9% per year.