Does anyone on here run a holiday rental?

[mandimoo]

Hi! We just bought a place to use as a holiday rental but I am confused about whether for tax purposes this will be treated as a business or as an investment property (I have an ABN but wasnt meant to be for this)? I am also unsure of any legal requirements, like do we have to get people to agree to terms, especially regarding their bond, when they are booking a stay or not? Please dont give advice such as 'if you have to ask these questions you shouldnt be operating a holiday rental' because I got that last year when we bought our first IP and I was enquiring about self-managing and they irritate me because I asked for advice not confidence destruction! Self-managed IP going really well 2 leases in by the way

Thankayou!

 

[Jacque]

Hi Mandimoo

Just like an investment property that is rented, a holiday home is treated the same. You will need to declare any income as part of your tax return and you will receive the usual interest deductions on the loan etc. If you intend to use your property for part of the year yourself, however, and then lease it as an IP for the rest of the time, you will need to convince the ATO that the property is a genuine investment. Whilst you can claim the usual deductions (including interest expenses, PM fees) for rental periods, these must be allocated according to the time it was rented out.
If in doubt, speak to your accountant. Best of luck.

 

[Ausprop]

there are 13 weeks over xmas in which you are not allowed to use the property if you want to claim it.

there is a gst exemption for short term accommodation - google around for that.

i would take a bond but you don't need to lodge it etc - not sure legal reasons why I assuem there must be some definitions so thta it doesn;t qulaify as a residential lease

 

[ozmale42]

Regardless of how it's classed, bottom line is if the property is producing income, or you can show that it is available for income producing (which will probably mean having it advertised to let) then you can claim interest and other outgoings for that period with all income being assessable. CGT will apply irrespective

 

[Ed Barton]

Hi! We just bought a place to use as a holiday rental but I am confused about whether for tax purposes this will be treated as a business or as an investment property (I have an ABN but wasnt meant to be for this)? I am also unsure of any legal requirements, like do we have to get people to agree to terms, especially regarding their bond, when they are booking a stay or not? Please dont give advice such as 'if you have to ask these questions you shouldnt be operating a holiday rental' because I got that last year when we bought our first IP and I was enquiring about self-managing and they irritate me because I asked for advice not confidence destruction! Self-managed IP going really well 2 leases in by the way

Thankayou!

who's going to manage it? how?

what's the minimum period? how are you going to market it?

i imagine you'll just take a 'bond' as pre auth on a credit card.

 

[mandimoo]

We are going to manage it ourselves, mostly me as I am at home every day. Our house is 30 mins from the place and it is on the way for most travellers so they can stop by to pick up the security key. I imagine that managing it myself will be time consuming and somewhat difficult because I do have 3 children, but unless it was busy enough to make enough money to pay for its own management I wouldnt bother paying anyone else. Minimum period will be 2 nights, one night is too much effort, I want at least a weekend out of it.
Im planning to market it just using the usual online sites and social media / networking also. We used to live in a mining town and my husband still goes to several different sites so I am planning to target people who live regional & come down to see family, go to hospitals etc. I am also creating a website for it.

Would it be essential for me to get credit card services? I wasnt sure if I should do that or just use PayPal?

 

[Ed Barton]

We are going to manage it ourselves, mostly me as I am at home every day. Our house is 30 mins from the place and it is on the way for most travellers so they can stop by to pick up the security key. I imagine that managing it myself will be time consuming and somewhat difficult because I do have 3 children, but unless it was busy enough to make enough money to pay for its own management I wouldnt bother paying anyone else. Minimum period will be 2 nights, one night is too much effort, I want at least a weekend out of it.
Im planning to market it just using the usual online sites and social media / networking also. We used to live in a mining town and my husband still goes to several different sites so I am planning to target people who live regional & come down to see family, go to hospitals etc. I am also creating a website for it.

Would it be essential for me to get credit card services? I wasnt sure if I should do that or just use PayPal?

i imagine pay pal will be messy around refund of the bond. if you accept credit cards you can take a pre auth (like a hotel does when you check in, you reserve a charge on the account for a certain period of time and then when you've inspected it the charge is lifted and the charge never actually appears on the customers statement). i don't know expensive accepting CC's is.

 

[depreciator]

Just list it here

www.airbnb.com

and you won't have to muck around with any of that sort of stuff.

I get the occasional person who hears about my short stay rental from friends, and I steer them to the site to book it.

There is a $50,000 insurance things included.

Payments are deposited into my account the day after guests check in.

They take 3% as a fee (and hit the guest up for about 10%).

 

[Jake D]

Setting yourself up to accept card payment is cheap and easy. Not as easy as setting up paypal, but it will make you available to way more people.

 

[Jake D]

I also just noticed you're in Perth. Out of curiosity, where is the holiday house? What suburb are you in that is 30 minutes away?

 

[Dazz]

Used to....

Does anyone on here run a holiday rental?

We purchased a beach house about 12 years ago, with the exact same intention as what you are heading into. Using it ourselves on some weekends and renting it out to others when we weren't using it.

Like most beach / holiday houses, it was where the spare table, spare cutlery, spare crockery, spare mattresses, spare fridge etc etc all ended up. Fine and dandy for us....but not for the chardonnay renting set, even the pretend chardonnay set !!

For $ 100 per night, for up to 8 people, they obviously expected the Hilton....as you do when you rent a beach shack. At $ 12.50 per head per night, why shouldn't you demand the very best.

Property was 100km from home, so a local lady (only one in town) managed it for us. She started out at 20% plus cleaning charges, six months later it jumped to 25%....with much resistance from myself.

This lark carried on for about 5 years, until three simultaneous things happened...

• The PM decided her cut was going to jump to 35%
• Some snooty teacher with a precocious 3 yr old child who decided to take all of the safety pins holding the lounge suite floral covers off and start throwing them around, then later trod on them, which she thought gave her the right to sue us for providing an "unsafe property". Fortunately it was only a threat and she didn't follow thru.
• We worked our bum off at our main job and gathered enough cash to pay out the loan.

When those three things happened within about a month of each other, we ran off the PM, we pulled the beach house off the rental market and we paid out the loan.

It took another month for me to take the title deed into another Bank and use it as a deposit on an industrial property that is so far cash flow positive with no whingey Tenants, that we now enjoy the best of both worlds. A holiday house whenever we wish to go, coupled with plenty of cashflow and no headaches.

In hinsight, it was worth it to rent out, simply to claim the interest and outgoings as deductible. When we were in a position to pay out the loan, it no longer becomes tenable.

The high maintenance of the whinging holiday market will surely drive you nuts, and with the competition out there, you are unable to lift your prices to anywhere decent levels.

Anyway, that was our experience.

 

[depreciator]

Yeah, I suspect that's often the way it pans out, Daz. A mate of mine had a similar experience with a place he owned north of Sydney. There is a probably a good part time business for a switched on person in a coastal town just taking on the management and maintenance and cleaning of, say, a dozen properties.


My short stay rental would be too hard if it wasn't next door. And if it wasn't such a simple property to maintain - one big room. And if I didn't have someone who owes me a few favours and does the cleaning and laundry free most times. And if it wasn't rented out mainly to couples or singles.

It's all going very well, but it's early days and things can always go pear shaped.

I'll be putting the rates up before summer. I'd be happy to have fewer, higher paying bookings. Of course, it's a fine line. If the price gets too high I would end up with guests who have higher expectations than I can be bothered meeting. Right now, the guests think they're onto a great thing and are very grateful and pleasant. One of them even did a bit of gardening out the back, and another cooked me dinner one night when the family were up in Newcastle for the weekend.

 

[Ausprop]

I agree that the best use for a holiday home is collateral against a CIP. the returns can be ok and you can almnost neutralise cashflow on a significant property but it can be hard work and you have to be ok with 100s of other people sleeping in your bed!

 

[Ausprop]

keep the thoughts on this coming guys... Dazz you have obvioulsy walked away from a return on your place becuase you cant be bothered with it. I reckon I can get the return on my next place up to around $60k (plus tax write offs), am I a fool to walk away from that just because I dont want to have someone elses bed bugs feed off me?

 

[Dazz]

Hi Ausprop,


Yes, not having literally dozens of people go thru your bed was the biggest bonus of taking the property off the rental market. Both the wife and I commented on this straight away.


The small amount of rental income.....ours was only rented for between 45 and 60 nights per year....so $ 6K tops....is irrelevant. If poncy wannabe lawyers want to start threatening legal action which is capable of stripping the title deed away, for the sake of 6K minus 35% - forget it. I don't want to play their silly games.


I gather your beach house Ausprop is a hell of a lot flasher than what ours is, so slightly different tact needed.


Actually, ours is a now a sad old late 1960's fibro tin structure that really needs to be pulled down.....it won't affect the value of the property by having a vacant block, so the security is still there as the deposit for the big cash flow generator elsewhere.

 

[Ausprop]

the old place I had was ready for a good push but it had renovation potential and the guy that bought it is doing it up - quite cool really. Over the peak of summer I was ripping out $5k a week, no agents. so no not flash, but the new build I am doing will obviosuly be new (?!) and hence subject to damage.

I think I have answered my problem - I will build a 2 bedroom granny flat to put onto the holiday market and keep the main house private

 

[mandimoo]

Thank you for all the advice guys Yes I will definately get credit card facilities. I don't really know how often I want to aim for it to be occupied as yet but we definitely do need it available for rent all year round to make it tax deductible as it was not cheap. The property is in Mandurah and I live in Port Kennedy so yeah, half an hour
I can't really decide what market to go for either at this stage. I have purchased most of the furnishings and it is all very modern and good quality, the beds will only sleep a maximum of 6 people or 6 people and one baby, I dont really want to go for the lowest of the low (the trashy bogans) but I don't want to price it well above the competitors either however I realise that if it is going to be too awesome for its price bracket that means more work for me : / (I have a 6 year old, a 3 year old and a 3 month old and uni so I am already pretty busy)
People suing us is definately something I worry about but I would hope our insurance covers that. I am very safety conscious so will be installing bolt locks high up on all windows and doors and have no pointy or dangerous furniture so that people's kids arent falling 6 storeys or bashing their heads!