Put out the wel­come mat

With tourism boom­ing, even a spare room can bring in ex­tra in­come

Money Magazine Australia - - REAL ESTATE - Pam Walk­ley Pam Walk­ley, found­ing edi­tor of Money and for­mer prop­erty edi­tor with The Aus­tralian Fi­nan­cial Re­view, has hands-on ex­pe­ri­ence of buy­ing, build­ing, ren­o­vat­ing, sub­di­vid­ing and sell­ing prop­erty.

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:

Ex­tra bed­room

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.

Ser­viced apart­ment

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.

Hol­i­day home

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.

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