Newsletter - Inner Circle July 2018
Inner Circle
Are you ready for the end of financial year?
It’s snuck up on us again. That’s right, we’re already halfway through the year, which means it’s tax time.
Hopefully you’ve been organised throughout the financial year, and have kept good records to show the taxman and to ensure you maximise the deductions – and therefore profits - for your investment properties. Deductions include property management fees, interest, any bills or outgoings such as council rates, body corporate fees, insurances and all repairs and maintenance of the property. Depreciation is also a deduction. You’ll need to provide evidence of costs to your accountant, including bank statements and ideally a depreciation report, if you have one.
In other news, we’ve seen numerous bold predictions for falls in Melbourne’s property prices in recent weeks. I’ve covered this topic and how the market is following the natural course of the property cycle many times, but let me reiterate that these are simply predictions. The reality is that the fundamentals of our city’s market, including population growth and strong economic conditions, will see it maintain its stability. Of course, as always, it’s essential to buy the right investment-grade properties, as these are the ones that will always maintain – and grow – their value.
If you want help finding an investment-grade property in Victoria – either in Melbourne or the regions - contact us for some advice today.
To Airbnb or not to Airbnb?
There were a few headlines in the news recently about properties rented on short-stay accommodation sites in Melbourne – one in Footscray and another in Carnegie - being trashed by tenants.
Since Airbnb has really taken off there are an increasing number of people looking at not only renting out their homes - or a room in their home - for short periods of time, but buying properties specifically to rent on short-stay accommodation platforms on an ongoing basis, rather than renting to long-term tenants. The big benefit of doing this, and the reason it appeals to investors, is that you can usually generate a higher rent. But there are drawbacks, and it’s essential for any property owner to thoroughly research the implications of renting a room or property on Airbnb before taking the plunge.
This is such a big topic we could talk about it until the cows come home. Do any search online and you’ll find an endless number of articles about renting your home on Airbnb, including how to do it properly, what the financial and tax implications are, the rules and regulations… the list goes on. But I can tell you that, as a general rule, we don’t recommend clients buy property specifically for short-stay rentals or Airbnb as it can limit the resale value of it in the future. It can be a profitable venture, but it comes with high risks and often a lot of hassle. While the lure of high dollars appeals to many, the practical reality of in effect becoming a hands-on property manager can lose its appeal very quickly. Profits can vary, markets can become saturated and even securing a reliable cleaner can be difficult. It’s not for the faint hearted or someone with a low-risk profile.
One of the biggest issues for Airbnb landlords is a failure to understand their tax obligations, and if you don’t meet your responsibilities you can face severe fines. Ignorance is no excuse in the eyes of the Australian Taxation Office (ATO). Most hosts would have little to no awareness that they are obliged to disclose all income to the ATO and that their property might become subject to capital gains tax (which can render renting it on Airbnb unprofitable). The tax office can access records if required via data sharing, so there is no hiding from it. As I said, if you are going to get involved in this venture, do your research first to avoid getting caught.
My advice for those that choose to rent their properties on short-stay platforms is to:
- Treat it as an accommodation business and get the right ‘business’ insurances in place
- Use a reputable short-stay property manager
- Use commercial-grade furnishings to reduce wear and tear
- Assume the worst in relation to occupancy rates so you don’t run into cash flow problems
- Budget for shortfalls in case things don’t go to plan
- Keep on top of ever-changing rules and regulations (just this month the NSW State Government) gave strata owners corporations the ability to prevent short-term letting in their block if the host doesn’t live in the unit, and hosts based in the greater Sydney area will also only be allowed to rent out their homes for up to 180 nights per year
At Property Mavens we’ve seen first-hand the way in which Airbnb ventures can go pear-shaped.
One of our clients, Kate, asked us to help her to buy an investment-grade heritage property in Melbourne’s CBD that she could use personally when in Melbourne, but rent out as short-stay accommodation when she was away.
Having bought for her in an amazing location in Flinders Lane, this arrangement started extremely well for Kate. It was her home base when coming to Melbourne for work and rented via a short-stay property manager when she was away. But in hindsight, it was always going to be a challenging combination when mixing something personal with business, and it turned sour. Unfortunately one booking was disastrous. The guest had a party and trashed her property, causing damage to (non-commercial grade) furnishings. The credit card used for payment was stolen, so funds had to be reimbursed and the insurance claim took weeks to resolve.
In short, Kate felt her home had been violated and she no longer stays there, so it’s now rented full time for short-stay accommodation. Risk mitigation has been put in place but it has ruined the purpose of what she bought it for originally.
Fortunately overall this property will perform, so all is not lost for Kate. We secured her a property that would deliver capital growth over the longer-term, and this, along with the 8% yield she’s generating, will prove to make the property a great investment.
If you want advice on where and what to buy, click here to book a time with us to discuss your requirements. It’s 100% obligation free.
Ballarat
Roger recently engaged Property Mavens to assist him in buying a home in Ballarat. He wanted to live in the property while he was working in the regional town on a contract, and to then have it become a cash flow driven investment property over the longer term. Roger was referred to Property Mavens by a loyal client, who also successfully used our services to buy a home in the high-demand Ballarat market.
We purchased a 3-bedroom, 2-bathroom house in Ballarat for Roger via a private sale using stealth negotiation tactics! We secured the property for $9,000 under the vendor’s asking price, giving Russell instant equity in a market that is going from strength to strength.
If you want similar results, click here to book a time with us to discuss your requirements. It’s 100% obligation free.
If you want to invest or buy the right home for your budget, click here to book a time, or call us for a chat about securing your financial independence.
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