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Tips for buying a holiday rental property

BMT team — Thu, 10 Jan 2019 22:44:12 +0000

Whether it’s a lazy lakeside house or a dreamy beachfront cottage, the appeal of a holiday home can’t be denied. Holiday homes offer the flexibility of a convenient weekend getaway with the bonus of rental income if you plan on short-term holiday letting. If the warmer weather has you considering buying a holiday rental property, there are a few important things to consider before signing on the dotted line. Location While it may be easy to fall for a secluded property with no neighbours or town for miles, this isn’t a wise choice if you plan on renting it out. Proximity to the beach or main attraction of the area and the local grocery store are must-haves for convenience driven travellers. Look at potential properties from a traveller’s perspective. If you are spending your summer vacation at a small, coastal town where the main drawcard is the beach, a property located twenty minutes inland won’t appeal to most travellers. Before buying a holiday home, ensure you do your due diligence and opt for an area that has consistent rental demand throughout the year. This way, you can best avoid long periods of vacancy. Listing Consider where you will list your holiday home when you wish to rent it out. You can choose to go through a real estate agency or list your property on a homestay website such as Airbnb. If you plan on using Airbnb to advertise your holiday home, make sure you read up on the local rules governing the conditions of short-term holiday letting. In New South Wales, recent legislation means that residences in Greater Sydney can be used for short-term holiday letting up to 180 days per year if the host is not present. In all other areas of New South Wales, properties can be used for letting 365 days per year. However, local councils have the power to decrease this to no less than 180 days per year. Depreciation Owners can claim depreciation deductions on their holiday homes for the period that they are available for rent. You can’t claim depreciation for the times you are living at the property. Don’t assume that because you are personally using the property at times throughout the year, you can’t claim depreciation. This is a costly mistake to make as depreciation can save owners thousands each year, making a holiday home significantly more affordable to own. It’s crucial that holiday rental owners engage specialist Quantity Surveyors to prepare a tax depreciation schedule in order to claim depreciation. BMT Tax Depreciation can tailor your schedule to your individual circumstances to capture all deductions for the time your property is available for rent. Before buying a holiday rental property, contact the expert team at BMT on 1300 728 726 so you can make a more informed decision about the most suitable property for you.

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Should you invest in a holiday home or a traditional rental?

BMT team — Wed, 21 Feb 2018 00:52:22 +0000

For those planning to invest in property, a holiday home is often an enticing idea. Not only do you get the rewards of an investment property, but there are certain lifestyle perks that come with a holiday home investment as opposed to a traditional rental. Namely, you get to stay in the property in your favourite holiday location when it’s not being rented out. It’s a win-win situation, right? Such considerations often lead would-be investors to question whether they would be better off investing in a holiday home or a regular rental. Here we outline the pros and cons of each approach. Holiday home advantages There are major lifestyle advantages to this approach. You’ll own your very own home in a holiday location which you can stay in yourself, but still earn money from it by leasing it out when you’re not there. Another major benefit is that typically, a holiday rental will deliver highly weekly yields than a regular rental in a non-holiday location, especially during peak holiday season for that area. Finally, holiday home owners will still be able to take advantage of depreciation deductions for the period of time when the property was genuinely available for lease (that is, those periods when the owner wasn’t using the property themselves). Holiday home disadvantages Before you start house hunting in your favourite holiday location, there are some downsides to this approach that need to be considered too. Firstly, the higher turnover of tenants generally leads to more stress and uncertainly for the owner and more wear and tear on the property. The property will also require more general upkeep between tenants. There may be greater periods of vacancy, especially if it’s in an area that thrives in holiday season but is fairly quiet for the rest of the year. For this reason it may not be as reliable or consistent as a regular rental. Furthermore, detailed record keeping is required if you wish to take advantage of tax deductions such as deprecation, as you’ll need to know precise dates of when the property was tenanted or available for rent and when you stayed there yourself. As you’ll likely have an emotional attachment to the property if you’re using it yourself, you’ll have to get used to others living in your space when you’re not there. For this reason you’d also have to be careful about leaving any personal belongings or valuables there. Finally, keep in mind that people will generally want to rent the place during peak holiday time. This means that if you actually want to make money from your property you might have to go there at less busy times of year, when the area may be lacking some of the appeal that originally attracted you. Traditional rental advantages This option generally offers more stability and consistency in terms of both cash flow and having the property tenanted, as it’s not so dependent on seasonal movements. There are typically less periods of vacancy, there is less wear and tear on the property and property management fees are generally lower. There is also the opportunity for greater capital growth as you can invest in up and coming areas and not be limited to already established holiday destinations, which may have already plateaued in terms of capital growth. Finally, as you’ll be able to make a full year claim, you’ll realise the benefits of depreciation more. Your depreciation deductions and cash return will be greater than if you only made a partial year claim, as you would do for a holiday home you stay in yourself. Traditional rental disadvantages The downsides of this approach are typically lower weekly rental yields and the fact that you can’t make use of the property yourself as you wish…it’s purely business and purely an investment. And you’ll still have to pay to stay in a hotel in your holiday spot of choice! Making a decision So which option should you choose? As always it comes down to individual strategy and what you most want to achieve from your investment property. This is something your Financial Advisor or Accountant will be able to assist with further. To help with your decision making, you can read more about investing in holiday homes here.

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Property investors: earn more from your holiday rental

BMT team — Wed, 20 Jan 2016 06:38:38 +0000

It’s that time of year when many investors take a well earned break by booking a holiday away from home with their family or friends. While they are away from home, property investors might be tempted by opportunities to purchase a holiday rental as an investment. Before making a decision to dive in and purchase a property, investors should seek advice from relevant professionals such as a Property Manager, an Accountant, a Financial Advisor and a Quantity Surveyor. This is because investors often decide to purchase a holiday rental with more than one motivation. They not only hope to gain an income from the higher weekly rental yields that a holiday home may offer, but they also picture taking advantage of their investment by spending some of their summer holiday’s taking in the ocean views from the front patio or swimming in the backyard pool. One common mistake holiday rental property owners make is to assume that because they are personally using the property, depreciation cannot be claimed. This can lead many investors to miss out on thousands of dollars in lost deductions annually. A specialist Quantity Surveyor can provide a tax depreciation schedule which is based on the portion of a year a property is available for rent, so it is best to seek advice on what deductions can be claimed before making any purchase decisions. Ensure you claim depreciation deductions for both the building and furniture The additional cash flow received by claiming depreciation deductions can often make the difference as to whether a holiday rental is a negative cash flow asset or a positively geared investment. A specialist Quantity Surveyor has the expert knowledge to calculate construction costs for the purposes of depreciation. They will perform a site inspection of the property and prepare a depreciation schedule which outlines all the deductions available including capital works deductions (for the building structure and fixed assets) and the depreciation of plant and equipment items (removable fixtures and fittings such as carpets, blinds, hot water systems and light fittings). Learn more: How BMT prepares tax depreciation schedules A specialist Quantity Surveyor will find the depreciable value of all assets within your holiday house. These items can add thousands in extra deductions over the first couple of years alone. Holiday house case study In the following example, an investor purchased a fully furnished property valued at $460,000 for use as a holiday home. The owner rented the property to holiday makers for twenty four weeks (168 days) of the year for an average return of $1,100 per week. For six weeks of the year they chose to use the property for personal use. During the rest of the year, the property was untenanted. This resulted in a total income of $26,400 per annum. Expenses such as interest, rates and management fees totalled to $28,000. The client was able to claim losses on a pro-rata basis for the time the property was being rented out during the first full financial year, leaving a total claimable amount of $12,887*. They were left with a positive cash position on paper of $13,513. By law, the client is required to pay tax on any income earned. However, by enlisting a specialist Quantity Surveyor and claiming depreciation, this client could reduce their tax bill by an amount of $1,959 for the year. The depreciation deductions in this case study have been calculated using the diminishing value method of depreciation and have be based on the pro-rata income and expenses the owner incurred during the first full financial year of ownership for the period the property was available for rent. *Pro-rata calculation $28,000 x 168/365 = $12,887 This investor was able to reduce their out of pocket expenses from $127 per week, down to $89 per week. A saving of $38 weekly, even though the property was only producing income for twenty four weeks of the year. If you’re considering purchasing a holiday rental or if you own a holiday home that is earning an income but do not currently claim depreciation, request an estimate of your likely depreciation deductions which may be available.

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