---
title: "Short-Term Rental vs Long-Term Lease in Melbourne — Which Actually Makes More Money?"
description: "Airbnb promises higher nightly rates but hides vacancy costs, cleaning fees, and wear. Our managed long-term properties hit $900/week with near-zero vacancy. Here's the real comparison."
author: Joey Don
date: 2023-03-30
category: Suburb Analysis
url: https://premiumrea.com.au/blog/short-term-vs-long-term-rental-melbourne-comparison
tags: ["short-term rental", "long-term lease", "Airbnb", "rental yield", "property management", "Melbourne"]
---

# Short-Term Rental vs Long-Term Lease in Melbourne — Which Actually Makes More Money?

*By Joey Don, Co-Founder & CEO at PremiumRea — 2023-03-30*

> The Airbnb dream: $350/night, booked solid, money rolling in. The reality: 60% occupancy, $200/turnover cleaning, accelerated wear, council restrictions, and income that swings wildly season to season. Let's compare the real numbers.

Every property investor eventually faces this question: should I put the property on Airbnb or sign a long-term tenant?

The short-term rental pitch is seductive. In Melbourne's CBD or bayside suburbs, nightly rates of $250-$400 make the maths look spectacular. At full occupancy, a three-bedroom house generating $350/night would earn $10,500 per month — more than double what a long-term tenant would pay.

But full occupancy doesn't exist in the real world. And once you account for the hidden costs, the management intensity, and the income volatility, the comparison looks very different.

I've managed properties across both models. Today I'm going to give you the honest comparison — including numbers from our own portfolio — so you can make a decision based on reality rather than fantasy.

## The short-term rental reality check

Let me walk you through what short-term rental actually looks like once you strip away the marketing gloss.

**Occupancy is seasonal and volatile.** Melbourne's short-term rental market peaks during major events — Australian Open (January), Melbourne Cup (November), Formula 1 Grand Prix (March), various festivals. During these periods, you can charge premium rates and achieve near-full occupancy. Outside these windows? Occupancy drops dramatically.

Realistic annual occupancy for a well-managed short-term rental in Melbourne: 55-70%. For an average operator: 40-55%. Those empty nights generate zero revenue but still incur holding costs.

**Turnover costs are real.** Every guest departure triggers expenses:
- Professional cleaning: $150-$250 per turnover (depending on property size)
- Linen replacement/laundering: $30-$50 per turnover
- Consumables restocking (toiletries, coffee, etc.): $20-$30 per turnover
- Platform fees (Airbnb takes 3% from hosts, up to 14.2% from guests): ongoing

If you're turning over guests twice per week at $200 per turnover, that's $400/week in costs before any maintenance or management fees.

**Wear and tear is accelerated.** Short-term guests treat properties differently from long-term tenants. Not maliciously — they're just less careful with things that aren't theirs. Furniture damage, appliance misuse, carpet stains, wall marks. Plan on replacing soft furnishings every 2-3 years. Major appliances take a beating.

**Management is intense.** Guest communication, check-in/check-out coordination, pricing adjustments, platform listing optimisation, review management, emergency responses at 2 AM. If you self-manage, expect 15-20 hours per week of active work per property. If you hire a short-term rental manager, expect to pay 20-25% of gross revenue — compared to 7-8% for long-term management.

**Regulatory risk is growing.** Several Victorian councils have introduced or are considering caps on short-term rental nights per year. If your council restricts you to 180 nights per year, your maximum revenue is capped regardless of demand.

## The real numbers: short-term versus long-term

Let me run the comparison on a specific property type — a three-bedroom house on 600+ sqm in Melbourne's southeast, valued at approximately $700,000.

**Short-term rental scenario:**
- Average nightly rate: $280
- Annual occupancy: 65% (237 nights)
- Gross revenue: $66,360
- Cleaning and turnover (average 2x/week, 50 weeks): -$20,000
- Platform fees (3%): -$1,990
- Furnishing and consumables: -$5,000
- Management fee (22% if outsourced): -$14,600 OR 800+ hours of your time if self-managed
- Maintenance (accelerated wear): -$5,000
- **Net income: approximately $19,770 (outsourced) or $34,370 (self-managed)**

**Long-term rental scenario (our actual portfolio data):**
- Weekly rent (post-renovation): $900
- Annual gross rent: $46,800
- Vacancy rate: approximately 1% (3.65 days/year — our actual portfolio average in southeast Melbourne)
- Management fee (7.7%): -$3,600
- Maintenance (standard wear): -$2,000
- **Net income: approximately $40,730**

Long-term rental with professional management produces more net income than outsourced short-term rental on this property. And if you self-manage the short-term rental, your "profit" of $34,370 costs you 800+ hours of work — an effective hourly rate of $43. Below minimum wage for a $700,000 asset.

The only scenario where short-term rental clearly wins is if you're in a premium tourist location (CBD, St Kilda, beachfront), can maintain 80%+ occupancy year-round, and enjoy the active management component. For the vast majority of suburban Melbourne properties, long-term rental is the better financial outcome.

## Why we chose long-term — and what it looks like

At PremiumRea, we manage all our client properties as long-term rentals. Not because we can't do short-term — but because the risk-adjusted returns are consistently superior for investment-grade houses in our target suburbs.

Here's what our management model looks like:

**Tenant quality.** We screen tenants rigorously. Employment verification, rental history checks, reference calls, credit assessments. Our rejection rate is high because we'd rather wait a week for the right tenant than rush in a problem one. The payoff: minimal arrears, minimal property damage, minimal turnover.

**Rental income.** Our average managed property in the southeast corridor generates $800-$1,000 per week in rent. For context, a $700,000 property renting at $900/week delivers a gross yield of 6.7%. That's exceptional by any Australian standard.

**Vacancy rate.** Sub-1.5% across our managed portfolio. In practical terms, the average property sits vacant for approximately three days between tenancies. When you list a well-presented house in a suburb with 1% vacancy, applications flood in within the first week. We typically receive 20-40 applications and can select the strongest tenant from a deep pool.

**Management ratio.** Our dedicated leasing managers each handle a maximum of 50 properties. The industry average is 170+. This means our managers know each property intimately, respond to issues within hours rather than days, and maintain tenant relationships that produce lease renewals rather than turnover.

**The compounding effect.** Long-term tenants who stay for 2-3+ years provide stable income, reduced turnover costs, and better property care. Each lease renewal is an opportunity for a market rent review without the vacancy risk of finding a new tenant. Over a five-year hold, the cumulative benefit of tenant retention — reduced vacancy, reduced turnover costs, reduced wear — compounds into tens of thousands of dollars.

## When short-term rental does make sense

I'm not categorically against short-term rental. There are specific situations where it's the right choice:

**Holiday homes you also use.** If you own a beach house or regional retreat that you personally use for part of the year, short-term rental during your absence generates income without locking you out of your own property. The return doesn't need to be optimal — any income above holding costs is a bonus.

**Properties in genuine tourist hotspots.** If you own a property in a location with year-round tourism demand — inner Melbourne, Great Ocean Road, Mornington Peninsula — occupancy rates can sustain the higher cost structure. But verify with actual data, not assumptions.

**Transitional periods.** If you're between long-term tenants and facing a few weeks of vacancy, listing on Airbnb for the interim can generate income during what would otherwise be a dead period.

**Premium event periods.** Some landlords pull their long-term rental off the market during the Australian Open or Melbourne Cup, listing short-term for 2-3 weeks at premium rates. This can add $5,000-$8,000 in a burst but disrupts the tenancy and risks losing a good long-term tenant. The maths only works if the premium substantially exceeds the regular weekly rent.

For investment-grade houses in Melbourne's middle and outer suburbs — the bread and butter of wealth-building property portfolios — long-term rental wins on net income, stability, management burden, and risk profile. It's not even close.

The properties we source and manage for clients — houses on 600+ sqm in Cranbourne, Narre Warren, Hampton Park, Berwick, Frankston — are purpose-selected for the long-term rental model. Large blocks in established suburbs with deep tenant demand and constrained supply. These properties don't need the volatility of short-term pricing because they generate strong returns from stable, well-screened tenants on fixed-term leases.

## The bottom line

Short-term rental is a hospitality business masquerading as a property investment. It requires active management, carries occupancy risk, incurs heavy turnover costs, and demands constant attention. The gross numbers look attractive until you deduct the real costs.

Long-term rental is a genuine passive investment. Properly managed — with quality tenants, appropriate rental pricing, and responsive maintenance — it generates consistent, predictable income with minimal landlord involvement.

For a $700,000 house in Melbourne's southeast:
- Short-term (outsourced management): approximately $20,000/year net
- Long-term (professional management at 1:50 ratio): approximately $41,000/year net

The long-term model wins by $21,000/year. Over a five-year hold, that's $105,000 in additional net income — plus the avoided stress, the avoided wear and tear, and the avoided risk of regulatory change.

If you're currently running a property as a short-term rental and wondering whether to switch, the numbers almost certainly favour long-term leasing. If you're about to purchase an investment property and debating which model to use, start with long-term. The income is better, the risk is lower, and your weekends remain your own.

We manage long-term rentals across Melbourne's southeast with a PM-to-property ratio of 1:50 — roughly three times more attentive than the industry standard. If your property isn't currently hitting $800/week+ in rent, there may be room for improvement in how it's being presented, priced, or managed. Happy to have that conversation.

## References

1. [AirDNA, 'Melbourne Short-Term Rental Market Report', Q3 2020.](https://www.airdna.co/vacation-rental-data/app/au/victoria/melbourne)
2. [SQM Research, 'Residential Vacancy Rates — Melbourne', October 2020.](https://sqmresearch.com.au/graph_vacancy.php)
3. [REIV, 'Rental Market Data — Melbourne Suburbs', Q3 2020.](https://reiv.com.au/market-insights/rental-data)
4. [CoreLogic, 'Melbourne Rental Yield Report', Q3 2020.](https://www.corelogic.com.au/)
5. [Consumer Affairs Victoria, 'Short-Stay Accommodation — Regulations', 2020.](https://www.consumer.vic.gov.au/housing/short-stay-accommodation)
6. [Victorian Government, 'Short-Stay Accommodation — Planning Framework', 2020.](https://www.planning.vic.gov.au/)
7. [Domain, 'Melbourne Rental Report', Q3 2020.](https://www.domain.com.au/research/rental-report/)
8. [Australian Taxation Office, 'Rental Income from Short-Stay Accommodation', 2020.](https://www.ato.gov.au/individuals/investments-and-assets/rental-properties/)
9. [PremiumRea internal property management data and rental income records, 2019-2020.](#)

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Source: https://premiumrea.com.au/blog/short-term-vs-long-term-rental-melbourne-comparison
Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent