Put out the welcome mat
With tourism booming, even a spare room can bring in extra income
The tourism sector is a shining star of the economy. Our attractions of beach, bush and fabulous cities have seen overseas visitors grow rapidly, up 8.1% in the year to July 2017 to 8.6 million, according to Tourism Australia.
And more of us are holidaying at home, with overnight trips by Australians up 2% in the year to June 2017, according to Tourism Research Australia.
The one thing that all these visitors need is somewhere to stay, boosting the attractiveness of tourism property as an investment. Here are three ways you can cash in on the tourism boom:
If you have one of the 10 million spare bedrooms in Australia, turn it into a money spinner. The internet makes it easy to match your excess accommodation with short-stay visitors.
How much you can make varies, depending on the location, the standard of accommodation and distance from transport routes. For example, according to airbnb.com.au you can earn an average $542 a week renting out a private room to two people at Sydney’s iconic Bondi Beach and $976 at Portsea on the tip of Victoria’s Mornington Peninsula.
Fees vary. Stayz.com.au charges 7% commission for online bookings and payments and 10% for offline payments. Airbnb generally charges the host a 3% commission – but it can be up to 5% – and the guest an additional 5% to 15%.
Other costs include cleaning, laundry, insurance and maintenance. You will have to pay tax on the income but you will be able to claim deductions for costs, including depreciation of fixtures and fittings in rented rooms and a proportion of your utility bills and rates.
One drawback of using part of your family home to earn money is that it will negate its total capital gains tax-free status when you sell. CGT will be payable pro-rata based on the percentage of floor space used to make income and the period you received it for.
Operators such as Quest, with 150 properties in Australia and New Zealand and an almost 30-year track record, offers relatively high gross rental income returns. Attractions are long leases, fixed annual rental increases, known outgoings and no management hassles.
Prices vary. In October Quest had, for example, a one-bedroom apartment in the Melbourne CBD for $325,000 with a gross yield of 6.11% (net 5.9%) and a studio apart- ment in the inner Sydney suburb of Potts Point for $383,500 with a gross return of 6.69% (5.81% net)).
But it’s not all upside. Demand for these properties is constrained because investors are the only buyers, keeping a lid on prices and reducing capital growth potential. And you’re unlikely to be able to borrow as high a percentage of the purchase price as for other property investments.
If you’re disciplined you can have your cake and eat it too when it comes to making a holiday house pay off. Decide each year exactly when you/your family and friends are going to use it and make sure it’s widely advertised for rental at all other times.
You need to be meticulous about this because tax deductions in relation to your holiday home, including interest on borrowings, depreciation, repairs and maintenance and letting fees, are based on the time the property was available for lease.
So, for example, if you decide you’re going to use your holiday home for 10 weeks in a year, you should be able to claim pro-rata tax deductions for the remaining 42 weeks. But this is dependent on satisfying the ATO that your property was genuinely available for lease for that time. This is made easier by the growth of holiday and short-term letting websites. And the added benefit is these usually also make managing your property cheaper than using traditional letting agents.