Short-Term vs Long-Term Rentals: Real Investment Case Studies
Short-Term or Long-Term Rental Property in Bali: Which Is More Profitable for Investors?
The rental property market in Indonesia, particularly in Bali, continues to attract investors from around the world. However, before investing, it’s essential to choose the right rental format: short-term (daily) or long-term. This decision directly affects not only potential returns, but also risk levels, taxation, and administrative obligations. In this article, we compare both approaches using real-life case studies, dissect legal nuances, and help determine the optimal strategy for investors.
Comparative Analysis: Short-Term vs Long-Term Rentals
The choice between short-term and long-term rentals depends on the property’s location, the owner’s level of involvement, and the investor’s goals. Below is a structured comparison across key parameters.
Short-Term Rental Format (Daily Rentals)
- Potential Yield: Up to 15% annually (Parq Development).
- Main Rental Platforms: Airbnb, Booking.com, or via professional rental management operators.
- Occupancy Rate: High during peak seasons (December–January, June–August) — up to 90–95%, low season — around 50–60%.
- Main Clients: Tourists, travelers, short business stays.
Long-Term Rental Format
- Expected Yield: 9–10% annually, exceptional cases up to 12–13% (Baliray.me).
- Rental Term: From one year and beyond.
- Tenants: Digital nomads, expats, international students, relocated employees.
- Seasonality: Virtually absent, steady income year-round.
Comparison Table: Yield and Risk Factors
| Parameter | Short-Term Rental | Long-Term Rental |
|---|---|---|
| Expected Returns | Up to 15% per year | 9–10% (occasionally up to 12%) |
| Occupancy | Variable, seasonal fluctuations | Consistent |
| Risk Level | Higher (regulations, tourism dependency) | Lower |
| Property Management Involvement | Mandatory, 20–30% commission | Mandatory, 10–15% commission |
Legal Considerations and Foreign Property Ownership
Foreign individuals may rent out property in Indonesia only through a licensed property management company registered in the country (Kalinka Realty).
Ownership Structures for Foreigners:
- Via PT PMA (foreign-owned company): Grants access to land rights under the HGB (Right to Build certificate).
- Nominee Scheme: Legally risky — involves registering property under a local citizen’s name.
- Leasehold (long-term lease): Popular and secure — typically 25-year lease with possibility of extension.
It is important to monitor changes in government regulations. For example, Bali is planning to restrict short-term rentals in residential zones. Legally renting to tourists typically requires a Pondok Wisata license, which is not available for all properties.
Taxation: How It Affects Real Profitability
To calculate net income, one must account for the basic tax regulations applicable to rental properties in Indonesia:
Property Tax (PBB)
- Rate — up to 0.5% of the government-assessed property value (ILA Global Consulting).
Rental Income Tax (PPh)
- For Indonesian tax residents: Progressive scale — up to 35%.
- For non-residents: Fixed withholding tax — 20% of gross rental income (Indonesia Real Estate).
The management company acts as a tax agent, withholds the taxes, and remits them directly to the Indonesian Tax Authority (DJP).
In Practice: Real-Life Rental Cases
Case 1: Villa in Canggu — Short-Term Rental
| Property: | 1-bedroom villa with private pool |
| Location: | Canggu — tourism and surfing hotspot |
| Investment: | IDR 4 billion (~250,000 USD) |
| Average Nightly Rate: | IDR 2.5 million (~160 USD) |
| Annual Occupancy: | 70% (up to 95% in peak season) |
| Pre-tax Revenue: | IDR 639 million (~40,500 USD) |
| Net Yield: | ≈11% after deductions |
Comment: High nightly rate and strong occupancy support solid gross revenue, though management fees and taxes reduce final profitability. Highly seasonal model.
Case 2: Apartment in Ubud — Long-Term Rental
| Property: | 1-bedroom apartment |
| Location: | Ubud — a serene, art-focused, non-tourist hub |
| Investment: | IDR 2.2 billion (~135,000 USD) |
| Annual Rent Rate: | IDR 220 million (~14,000 USD) |
| Management Fee: | 10% |
| Non-Resident Tax: | 20% |
| Net Yield: | ≈7–8% annually |
Comment: A stable investment not dependent on tourist flow. Lower yield, but with notably reduced risk exposure.
Choosing the Right Strategy: What Suits Your Goals?
Short-Term Rental Is Suitable If:
- You are ready for active property management or hire a skilled rental operator.
- The property is in a top tourist area.
- You are comfortable with potential income volatility in favor of higher returns.
- You are prepared to adapt to tightening regulations.
Long-Term Rental Is Suitable If:
- You prioritize predictable cash flow with no seasonal gaps.
- The property is located in a quieter, non-tourist area of Bali (Ubud, Sanur, Jimbaran, etc.).
- You seek to reduce legal and tax-related risks.
Hybrid Strategy: Some investors apply a mixed model — short-term rental during high season and long-term during off-season. This requires flexibility but can improve overall yield.
Conclusion
When choosing between short-term and long-term rentals, investors should consider their personal strategy, risk tolerance, and desired level of involvement. Short-term rentals offer higher income potential but come with administrative and regulatory challenges. Long-term rentals provide stable, predictable income with lower risk.
Tip: Before investing, consult with a legal expert, tax advisor, and secure a reliable property management company — this will help avoid costly mistakes and preserve rental profitability under any strategy.
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