EPISODE 14:
Short-Term Rentals in Crisis: Why You Should Opt For Long-Term

00:00
Alright, so here we are, Bali Business Club, first one of 2025. I’m here with, my usual sidekick, Omri Ben-Canaan. Thanks Gawain. And I got a good to, this is our first podcast of 2025. We haven’t, shot in, like, a month or something. Yeah. I’ve been away in Cape Town. I’ve been away too, everyone’s been away Happy New Year, everyone. And, today we’re talking about specifically. Well, I suppose we’ve spoken so much in the past about acquisition of property, buying a property, leases, long term leases, lease extensions.
00:29
Check all our other podcasts for that. So today we actually what do you do when you’ve got a property. How are you going to get yield off a rental yield Long term, short term. So, we need a jingle. So we stop now, and we come back in two minutes. We’ve forgotten how this all works. Jingle. Okay, so, yeah we’re talking about, leasing, long term leasing short term leasing. Let me, give you guys a little bit of context. We started a villa management company about 2 or 3 months ago, and the first couple of months,
01:07
I was back in the middle of October or something. First couple of months, we only had a couple of villas in order to, you know, put all the SOP’s in place and everything during that time. So we did that. Okay. And during that time, I thought around early December, I thought that what about the impact of, rental prices on the yields that we get from, short term rental versus long term rental. And so I took Excel sheet, spreadsheet and I put some numbers down. It’s always good to start with your numbers
01:45
before launching the business. Yeah. Well, this time I kind of launched it before I don’t think is the first time. Yeah, yeah. But, I mean, you know, for my defense, most of the agencies in Bali have done the same thing. Yeah. So, so I put some numbers on, and, and the results came as a surprise, as a shock to me. So basically what I did and and we’re going to show it to you in a minute. We added a couple of columns. I did a couple of columns. Long term rental, short term rental. And for each we inputted different items such as,
02:22
expenses that are, that you have when you do short term expenses that you have when you do long term here, the point of view here is the villa owner or the property owner whether it’s a villa, loft, whatever. Yeah. what I was trying to get is how much money exactly do they get from short term rental. And we know those numbers because we are the agency and everyone has I mean, there’s, million data out there. So how much money you get from short term rental and how much you get from long term rental,
02:53
which is something that I personally, I never put those numbers down, like, you know, ever. Yeah, it’s kind of obvious, but once you actually put them down and look at them and analyze them and not only revenues, the costs, operating costs, cost associated, which we’ll get to, but yeah. And okay, so for for those that don’t know Bali and don’t live here there’s in the, the general knowledge, the people in people’s mind. It’s always better to do short term rentals. You people think that, you know,
03:24
I mean, before the, the general thinking on this was the consensus was that you breakeven. So you build a house or you buy a house, whatever you break even in like 6 or 7 years, give or take. If you do short term rental. Okay. If you do long term rental, you can You add like three, two, three, four years to that numbers Nine, ten years in order to break even. What I did when I put those numbers into a spreadsheet is I was trying to to find out whether the increase, but I knew the answer a little bit
04:01
before I did it. Otherwise I wouldn’t have done it whether the increase of, long term rental prices after the Covid ended had an impact on the bottom line. Okay. So basically, in order to understand what happened in Bali, we had I mean, you we were here Yeah. Let’s talk about a little bit about Bali. Yeah, a little bit of history. So Covid: prices were slashed. It was super cheap to get anything. There was no one the demand was very, very low. So the offer was very, very low as well. I mean the prices of the offer was very low
04:37
And then, Covid ended, revenge traveling, and war in Russia. Okay. Russia-Ukraine. So what happened is both these factors, had a huge impact on prices, in Bali, whether it’s rental prices or restaurants or anything basically Still it has not really come back down. still going but that was a huge spike straight off. That was a bubble. Yeah. I mean, I’ve seen guys buying, Russian buying houses without seeing them for like half a mill, you know, like crazy prices. Yeah. My friend sold the house for $840,000 in Pererenan.
05:19
And the real price of that honestly wasn’t $840.000 It’s not worth it, you know, this was a lack of stock at that time. Like, there wasn’t much on the market, no much development. And there was a need for Russian, men, especially. To stay out of the country. Yeah. And Ukrainians, I remember. Yeah, yeah. Of course and Ukrainians. Yeah. Let’s dive into it. Okay. So you’re going to see on your screen a nice, chart here, I mean, table with, bunch of photos. So just to make everyone understand. So we,
05:48
we ran a few assumptions, we ran a few, scenarios, and we go for two bedroom villa, three bedroom villa, four bedroom villa. We always come to the same number. More, give or take 10% – 20%. So here we’re not going to see all the scenarios. We’re just going to see one, which is a very common scenario. It’s a two bedroom villa. So you can see some photos on the left side of the screen. This happened to be a villa that we built recently. And we sold to a Frenchman. And the villa is on the market for short term rental.
06:22
So you see, in this column, short term rental here and long term rental here. So what we did is basically that villa, would go for around Rp 2.500.000 per night. Okay. If it was rented daily, the equivalent, if that villa was rented yearly, it would be around, between 400 and 450 million, depending on the location. Okay. So Rp 2.500.000 daily That would be an equivalent to Rp 63.750.000 at an 85% occupancy. And that’s your number here. Okay. Then you take this number. So basically that’s the money in.
07:05
That’s the money in, okay. You remove from that all the expenses. So maid around Rp 3.500.000 pool guys Rp 700.000 gardeners Rp 700.000, water, electricity, Rp 3.000.000 laundry or different products, Rp 1.000.000 Internet, Trash, Banjar, Rp 750.000 House maintenance or non structural, things like bulbs, broken bulbs, small things to repair, painting and yeah. mold management, which is a big issue. Yeah, exactly. So around Rp 700.000 So all these numbers are debatable. It depends, where, what is location?
07:46
Depends on the staff. It depends on, you know, many factors. But this is like an average, yeah it won’t I mean, the changes here, won’t change much the outcome and then, 15% for the OTAs, wherever, Booking.com, Airbnb and so on and so forth. Some will argue that Airbnb is cheaper. It is, for the villa owner. But at the end of the day, if the price, is impacted by the, the, the commission, then at the end of day it becomes the same for the, for the villa owners. So 15% average and then management company,
08:22
we put 20%. Some management company are 15%, some are 20, some are 25, some are 30%. So it’s an average, yeah and then taxes, 10%. So what do you get out of a 63,000, Rp 63.000.000 monthly revenue You end up getting you deduct the Rp 39.000.000 expenses you end up getting Rp 24.712.500 in your pocket. That’s the nett profit for the villa owner, which is around 38%, from the, cash in. Again, this is debatable. It can be 40%, It can be 41%, It can be 37% Depends what you spend here okay. So that’s short term, alright.
09:14
Any questions so far? No, I just think to comment around occupancy, the 85% is definitely on the top end. I think the highest we’ve ever had is like and all these numbers also up for like you, you can check your sources on these percentages, the numbers. But they do vary across sources. Absolutely. It’s a bit of a disclaimer on that. But I think 85 is top top end I think average 65%-70% from what I see The average in Bali for hotels is I think 2024 was 59 point some 60%. That’s hotels. Yeah, it’s not villas.
09:44
But I mean, if you have a villa, I mean if your villa is, correctly located, nice inside. You should hit that mark. Yeah. if you’re not too bad in marketing and if you’re using a good agent, I mean, worst case, you get 75, you know, average across the year. Yeah. So, yeah, it’s not it’s not I mean, some villas have more than that. We took 85% because we had to put a number here. and it kind of like make sense. I think it’s, it’s not conservative, but, it also, help make us our whole case here. Yeah, and just to put that in dollar terms.
10:22
So it’s about $160, and then, $4,100. So yeah, to. Yeah, we could have put dollar column actually. Good idea. But yeah, Rp 2.500.000 is about $160 and Rp 63.000.000 here, Will be around 4000 bucks. Yeah, yeah. So the, Rp 24.000.000 here would be $1700, give or take. Yeah, something like that. Not bad, Yeah. Let’s go to long term. So long term, the same villa, the exact same villa would go for Rp 450.000.000. The assumption is that we only doing 90% occupancy. I mean, if it’s if it’s rented yearly, it should be 100%.
11:09
But let’s assume that, there’s a, you know, do guest leaves, and and you have to find another guest and there’s some, some small renovations or let’s assume you rented it around 11 months per year. Yeah. Yeah. All of these expenses you don’t have because this is all, the guests paying for it. Okay. When you rent your villa, I mean, there are different, different scenarios. Some people rent a villa with the staff. Okay? But we took the assumption for this price, the staff wouldn’t be included. Nothing is included.
11:46
The villa I’m renting, for instance I’m renting a villa. There’s nothing included. I pay for the maid. I pay for the internet. I pay for the electricity, I pay for the gardener, the pool guy. I pay for basically, right? I even pay for renovation and even structural stuff I pay because I don’t want to the headache of asking the villa owner. Generally the rule of thumb is the longer the lease, the less you’ll pay. Absolutely, absolutely. So and then below OTAs obviously there is no OTAs because, it’s long term rental
12:13
and management company, there’s no management company. Because long term management companies in Bali, don’t exist or are very, very, rare. That’s the act, the same way as they act for short term rental. Yeah, I mean, that’s also topic of discussion is just how underserviced that sector is, you know? Yeah. And there’s a lot more people looking for longer term in Bali short term letting is, you know, it’s definitely saturated getting more expensive on all fronts. And there’s an An interesting shift.
12:47
There’s an oversupply at the moment. An oversupply Because everyone started building villas when, post Covid and now there, there’s just too many villas. Yeah. Anyway, so let’s, finish on this, those numbers. So you pay you do pay your 10% tax. So those taxes are based on that number here. And, so those are the only expenses you actually have, for that in that example. So your revenue is 33 million, minus the 3.3 million tax, 10% tax. You have 30 million, nett profit in your pocket, versus, 24 mill
13:21
So here we have an example where we see clearly that long term rental, today is much more profitable than short term rental as opposed to what everyone thinks. Me, me the first, two months ago, If you take that villa and you go back in time, maybe three years or four years, let’s say pre-Covid because Covid was different here, that villa would be 250 million and not 450 million. And in 250 million scenario, short term rental is much better than long term rental But today the market has changed.
14:03
There has been a huge shift in, how investors approach the market. They want the money fast. they don’t want to back down. They don’t want to go back on the old prices. So everything is very expensive. And as such, if you rent your and there’s a huge demand. So there’s still demand. I think it’s more of a demand thing than actually and also just inheriting just the way things are done in Bali. It’s just always been so positioned for short term letting. But this shows you we need to relook at things, you know?
14:35
Yeah, absolutely. Because the demand is now shifted. And it’s not only a money thing. I mean you, if you do long term wear and tear on your villa is much less because there’s nothing worse than, you know, guests that here that like holiday rental because they don’t care. They really don’t care. People that stay one year in a villa and they will take care of your villa. you don’t have to worry about it, you know, because they actually live there. So they even they would even improve the place. Yeah.
15:01
In many instances, yeah people that are here for one week, they just put the AC, like crazy, 24/7 They really don’t care. They break things, they party. You know, And you got to take into account the stress of running a business like this, battling bad reviews, It’s horrible yeah, sleepless nights, yeah. You know, unless you have, like, a hundred villas. But even then, this kind of business is a it’s a management intensive business. But I mean, that’s on a on a villa management, standpoint, but even for a villa owner.
15:28
They still deal with it for sure. Yeah absolutely. They know what’s going on. Absolutely, absolutely I mean, I, my, the two villas that were renting out, since when we started the, the company, I mean, the villa owners who are friends of mine, were calling me every, every hours a day to ask me about, results and, you know, where where are we going? What are we doing? And, this and that and small details, you know, so that’s something to, to think about as well. This is, a little bit of, A little bit of shock
15:59
Yeah, it was a shock for me. I was like, wow. So I had to do this like ten times. I run those numbers by, villa management companies like, competitors of us I show them those numbers. I took 2 or 3 of them. I won’t say names, but two famous ones. I chose three of them. I show them those numbers, and they were like, oh, wow. Yeah, that’s surprising as well. So, here we go. And also the one affects the other one like a more stock is in short term the higher value, the long term rent, you know, the prices shift up
16:31
because there’s less there’s less stock available. Yeah. Absolutely. Yeah. So yeah interesting scenario. Your question is like what are you going to do with your villa management company? So a bit of a heads up. and this is, a bit of spoiler We are turning our villa, our short term rental villa management company, into a long term villa management, long term rental villa management company. So how all that work? Like, because I know at the moment people just, go on, Facebook Marketplace list a villa like.
16:59
Yeah. So, The problem with market, the problem with that is that if you’re an investor and you’ve bought a, or you lease the, you have your own, the rights on, on a villa in Bali and you live abroad. There is no way you can put it on marketplace and manage it yourself because your tenant every time there’s a bulb breaking, I’m going to call you and you’re back in the States or Australia or Cape Town or France or wherever. What are you going to do with your bulb? You know So you need a villa manager
17:28
So, but if you have like one guy, one dude managing your villa, then you still have to work. So. But the model we are doing now that we are building now launching soon is a company where it’s exactly the same service as a villa as a short term villa management company, except it’s long term. So we’ll take a lower, commission, probably around 15%. and but we manage everything. So we’ll go and check on the villa, we will change the bulb, We will help also probably, give some sort of mini concierge services
18:05
to the guests. So if you are an expat in Bali, you’re newly arrived in Bali, for instance, you’re renting your villa for one year or two years, and you need help with, I don’t know visas or car rental or whatever. this is something, we can provide as well. the villa owners, the property owners don’t have to worry about a thing. They don’t have to call Kadek or Putu or whoever because, or handle salaries of the staff and then the staff is leaving for whatever reason, you have to find a new maid or a new whatever, which is a
18:39
a crazy headache. Yeah. So it’s not long, long term rental. You’re looking probably four months, six months, eight months, a year. That kind of more interesting in long term rental, to be honest. Like long, long? Like long, long! Like longer three years Like. Yeah. Like yearly. Yeah. Six months to one year. Because the problem is if you do like one month, two months then you already have gaps in between, yeah And it’s, it’s always a headache to find a new tenant or whatever. And the extra money you make
19:03
from the actual, short, I mean, mid-short term rental is not covering the gaps. Yeah. I mean, I never made a calculation, but it’s probably not covering enough the gaps So, we go for a long term. We want tenant that are solid. We will vet them as well. Make sure they are not, you know, whoever, we won’t take any villa as well. We won’t take only, like, you know, villa, that we think that not gonna break down at the next. Yeah, yeah, yeah So, yeah. It’s, So you vet both sides pretty much like any long term letting agency
19:42
all around the world just they seems to be a huge lack in Bali There is none. we realized today with those numbers that it’s, I mean, it was true up until now. And now it’s, it’s a mistake. I don’t see any reason to go short term. Over long term. Not one reason. You know. No, I don’t think there is, yeah. There we go. Yeah. So any more information or you want to ask some more questions, comment below. Yeah. Anything else? Any other? Subscribe! Send us messages if you want to, if you want to reach out or discuss
20:26
anything, we are happy to, we always reply, to the comments. Always. Except when it doesn’t make sense. Or hate! Or hate, haters. We don’t reply to haters because it doesn’t make sense to reply. Yeah, but also any ideas for other podcast or you want to hear about anything or something you would love to know or you don’t know. Yeah. Cool. Yeah. Easy See you next time. Yeah. Take it easy. Cheers guys! Bye!