Holiday rental executive summary

[coolie21]

Sorry if this has no doubt been covered before but I haven't found the search function too helpful for this. Could someone please post a short executive summary on the tax and financial issues of buying a property for holiday rental, and the implications of using the property yourself when it is vacant?

 

[Pushka]

Not an executive summary, but these were the main issues that bugged us when we had an Investment apartment in Noosa:
You get slugged mutliple credit card costs everytime someone uses a credit card for their holiday (if only staying 3-4 nights at a time that adds up over a month)

Cleaning costs - the property managers make their money out of daily/exit cleaning! Expect to pay at least $25 a day for cleaning, around $70 for an exit clean

Advertising - holiday apartments are always paying for advertising

Breakages - people lose things like remote controls for TV's all the time, and the owner ends up paying for them because the guest never has to. Irons, kettles etc constantly being replaced

Vacancies - the rental income goes up and down hugely!

If you are using the property then for that time you cant claim any expenses.

Um, our original property was managed by a good group,then they sold out to the Breakfree Group and that was the beginning of the end for us. Our apartments were very unique and classy but once they went under the Breakfree banner the uniqueness and class was lost.

 

[yo yo ma]

You get slugged mutliple credit card costs everytime someone uses a credit card for their holiday

Not always the case... I just booked a stay at Peppers Salt Resort & Spa, Kingscliff. I paid a 2% credit card surcharge there. Could have paid by cheque but I was happy to do it online & pay the surcharge.

Coolie21, here are some links of similar posts
http://www.somersoft.com/forums/showthread.php?t=33831
http://www.somersoft.com/forums/showthread.php?t=32564
http://www.somersoft.com/forums/showthread.php?t=31032
http://www.somersoft.com/forums/showthread.php?t=34077
http://www.somersoft.com/forums/showthread.php?t=28755
Steve

 

[coolie21]

Coolie21, here are some links of similar posts
http://www.somersoft.com/forums/showthread.php?t=33831
http://www.somersoft.com/forums/showthread.php?t=32564
http://www.somersoft.com/forums/showthread.php?t=31032
http://www.somersoft.com/forums/showthread.php?t=34077
http://www.somersoft.com/forums/showthread.php?t=28755
Steve

Thanks for that Steve. I'd seen most of those but didn't really get the tax answers. What if you bought an investment beach house, rented it on 6 or 12 month leases but took personal advantage of any 'gaps' in the lease?

I think I've seen and read enough to put me off short term lets.

 

[yo yo ma]

Have a read of the ATO website. See points 20-26 of this ruling on the site. It goes over the points of "Letting of a holiday home or potential retirement home for part only of the year."
http://law.ato.gov.au/atolaw/view.htm?docid=ITR/IT2167/NAT/ATO/00001
I'm not an expert but it seems like you can apportion the amount of time you spend at the place, compared to the amount of time it is rented out.
Steve

 

[Pushka]

Not always the case... I just booked a stay at Peppers Salt Resort & Spa, Kingscliff. I paid a 2% credit card surcharge there. Could have paid by cheque but I was happy to do it online & pay the surcharge.

The on charge to owners occurs when a resort consists of individually owned units, and Peppers may be owned as one entity and not separate ones. If they are individually owned, you as a customer would not know whether the owners were similarly on charged by the resort management.

 

[GoAnna!]

We don't do holiday lets but we do offer short term fully furnished and equiped accomodation. (all you ned to bring is your clothes) I would not take anything less than 3 weeks and usually its let for months at a time. Electricity is included but the phone and cleaning is not. We have very little vacancy and are very happy wth the yield.

 

[coolie21]

Have a read of the ATO website. See points 20-26 of this ruling on the site. It goes over the points of "Letting of a holiday home or potential retirement home for part only of the year."
http://law.ato.gov.au/atolaw/view.htm?docid=ITR/IT2167/NAT/ATO/00001
I'm not an expert but it seems like you can apportion the amount of time you spend at the place, compared to the amount of time it is rented out.
Steve

That's awesome thanks, answers everything

 

[Bricks & Mortar]

Hi Coolie21,

I guess Pushka has outlined some of the flaws of owning a holiday rental,
In fairness you do have good points as well.

Our yield is a larger return as a holiday rental than leased as a house per year.
You also can claim the depreciation of the furnishings and also the replacement of goods detroyed or lost.

Capital growth, has been an added attraction in ownership
as holiday destinations tend to mimmic and sometimes better CBD in growth.

Yes, you do get all the added costs and pay a higher commission but its all part and parcel of property ownwership.

Cleaning has been a personal irritation of the past with us, where its not done properly and yet you still get charged.

It does seem to be more hands on than regular rentals, needing constant maintainence. Despite less time in the house for wear and tear, tennants aren't always as respectful of the property when they don't live there full time. It's a holiday, not their own home so I guess not all will look after it as you would like.

You do get access to the property for personal time, but more often than not you will choose "out of season" as it will effect your income stream.
Also most of the time we get to the holiday house, It's because maintainence issues need to be addressed...but we own a house not a managed unit.

Can't complain about it as an investment, but all further purchases after this one have NOT been a holiday house or unit.

As far as finance is concerned you will need a record, ours was simply a statement from the agent advise of the yearly rental we would get renting it out full time, when we first built the house. Now we have a history, which is always required for subsequent purchases.

 

[turk]

We don't do holiday lets but we do offer short term fully furnished and equiped accomodation. (all you ned to bring is your clothes) I would not take anything less than 3 weeks and usually its let for months at a time. Electricity is included but the phone and cleaning is not. We have very little vacancy and are very happy wth the yield.

GoAnna

I have a rental property in Middle Park and have been considering holiday rentals but would probably be more interested in short term rental. I would appreciate if you could tell me a bit more of the in's and out's of this

Peter

 

[kathryn d]

Hi Goanna,
Just wondering if you keep an inventory of everything.
for example:10 towels when they rent, 8 towels when they leave. Do you charge them for anything that is stolen/damaged?
We are thinking of doing this next year with our bachelors, during summer holidays, when students don't need them.
Might sound petty, but after a while , it all adds up.

 

[Pushka]

We are renting out a furnished apartment and we are using a property manager. But one of the downsides is that the PM will want to do an Inventory for us at every departure at the rate of $45 an hour. Now, imagine having to count six spoons, six knives, one 6inch saucepan, and so on. Then the cost of chasing up if there is something missing. Not sure if it is worth the hassle!

 

[GoAnna!]

We do use a property manager so she checks the invntory. Stuff being taken has really not been an issue. The worst that happened was a towel that was destroyed through bad washing. If anythng I find tenants seem to add stuff - I don't mean rubbish but useful stuff that will make the place even better for subsequent tenants.

My place is top shelf with high quality fittinsg and furnishings so I don't know if that effects things at all. It is not for students or the budget minded.

Some past tenants have been: Business owner setting up new franchise, newpaper editor, ABC broadcaster, government employee transfered for short term contract. Many have their rent paid, or subsidised, by their employer at least for a period of time. Often it is billed by invoice rather than paid on a month by month basis and some may pay all 6 months or whatever up front. Other times it might be paid after 60 days. The average stay is 6 months but I don't turn done short periods like 3 weeks if its vacant becuase the last time I did that she stayed for 9 months. So you never know.

This year I plan to let it on a week by week basis over the peak summer month or so if the current tenant vacates because the rents at that time go absolutely insane.

One critical thing is using a property manager who specislises in these types of lettings as they build up relationshisp with local companies etc. They may also get the flow over from local furnished apartment operators as mine does.

Hope that is of some assistance.