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Is Airbnb the answer to
boosting cash flow for property owners?
If an owner has a spare room in their home, or
has a granny flat, or an investment apartment near a
business centre, or a holiday house, then
they can boost their cash flow by renting it
out as short-term stays to business and holiday travellers.
This is how it works: The owner sets the rent higher than
the long-term rent because it is a short-term letting. For
instance, the Airbnb rent might be $65 per day (plus a
cleaning charge) for the room, which is higher than the
weekly rent of $245 per week ($35 per day) for the same
room. This suits the guest because the rent is cheaper than
the daily tariff charged by a hotel.
Airbnb is therefore effective way to boost cash flow from a
property, whether it is a spare room, a granny flat or a
whole house or apartment.
Why have short-term lettings become popular with property
owners?
Until recently, it was too hard and too expensive for
property owners to rent out their property for short-term
stays. So travellers stayed in hotels, motels, serviced
apartments and bed & breakfast accommodation. Holidaymakers
stayed in flats were managed by specialist operators and
real estate agents who charged a commission of 15% to 20%.
In 2008, two college graduates in San Francisco noticed a
chronic shortage of accommodation, and had a flash of
inspiration – Why not use the internet to advertise
overnight stays on airbeds in their lounge room, with
breakfast included? This was how Airbnb started (and got its
name).
Today, Airbnb has over 2 million listings in 191 countries
on its website, so it provides world-wide marketing reach
for property owners. Combined with low charges of 3% to the
property owner and 6% to 12% to the traveller, Airbnb and
others like Stayz.com.au, eDreams.com.au and Bookings.com
are disrupting the accommodation industry by taking
market share.
In Australia, there are 70,000 Airbnb listings, in popular
suburbs like Kirribilli, Darlinghurst, Manly and Bondi Beach
in Sydney, and Carlton, South Melbourne and St Kilda in
Melbourne.
It is possible to use the Airbnb website to zoom in almost
anywhere in Australia to find a place to stay at a cheaper
rent than the local hotel or motel. Bookings including
payments are made via the Airbnb website, which contains
reviews by travellers and ratings, much like the TripAdvisor
website provides.
What are the legalities for property owners for short-term
stays?
Until now, many Airbnb hosts have flown under the radar,
legally.
But as it becomes more mainstream and widespread, the
government has taken an interest in regulating short-term
stays. The NSW Parliamentary Inquiry issued a report in
October, and the Victorian Parliamentary Inquiry is
currently considering submissions.
This is an overview of the law as it applies to short-term
lettings:
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Town Planning Law - Most properties which are
suitable for short-term lettings are in a residentially
zoned area. It is here that we need to differentiate
between renting out rooms in a home, renting out a
granny flat, and renting out a whole apartment.
Renting out 2 or 3 rooms to guests in a home does not
generally need planning approval, even if it is regular.
But if more rooms are rented, and if breakfast or
cooking facilities are provided, then planning approval
and a licence as Bed and Breakfast Accommodation or as
Backpackers’ Accommodation is needed. Renting out a
self-contained flat in a home, the same rules apply,
with the proviso that the flat needs to be approved for
accommodation (that is, no illegal garage conversions).
Business insurance will be needed.
Renting out a whole house or apartment for short-term
stays means that the use may no longer qualify as a
‘home use’. If the zoning permits ‘serviced apartments’,
‘holiday lettings’ or ‘tourist accommodation’ then
short-term stays may be permitted with planning
approval.
There is currently no equivalent in Australian Planning
Law to the London regulation that short-terms lettings
of over 90 days need planning approval, or to the New
York regulation that bars short-term lettings of under
30 days unless the owner is living in the apartment.
However, these kinds of restrictions are ‘on the table’
in the current government reviews.
It is wise to check with the local planning authority
before signing up to be an Airbnb host.
-
Insurance - Renting a room in a home is the same
as having a home office for insurance purposes - both
are business uses which are not covered by a standard
Home Owner Insurance policy when it comes to coverage
for injuries. It is different for Landlords policies,
where coverage is provided for guest / visitor injuries
in investment properties.
Malicious property damage by guests is not
covered by insurance policies. Airbnb fills these gaps
by providing “Host Protection Insurance” to cover
injuries and a "Host Guarantee" to cover property damage
by guests.
-
Taxation - For Income Tax purposes, all rents are
income and some expenses are deductible. Expenses such
as service fees, cleaning expenses, repairs and
maintenance, food, photography for the listing and extra
insurance premiums are deductible; and the bed,
wardrobe, blinds and carpets are depreciable. Claiming
Home Insurance, Council and Water Rates and loan
interest is fraught with danger for Capital Gains Tax
purposes.
For Capital Gains Tax purposes, renting out a room in a
home or renting a granny flat may result in a partial
loss of the main residence exemption, because the
property is used to derive income. The partial loss is
calculated according to the floor area rented out, and
the period in which the accommodation is available.
For Goods and Services Tax purposes, no GST is payable
unless the short-term letting is operated as a business.
For example, a Bed and Breakfast business or a serviced
apartment business or a holiday lettings business will
need to be registered for GST, even though they receive
residential rents which are normally exempt from GST.
-
Strata Law - The Courts in Victoria have ruled
that any strata by-law which restricts the use of
apartments for short-term holiday letting is invalid.
This is because Strata Law in Australia prohibits any
restrictions on an owner’s right to rent out their
strata apartment.
Although Body Corporates cannot bar Airbnb lettings,
they can control noise and damage to the common areas.
Governments in Victoria, Queensland and New South Wales
are considering ways to bolster the powers of Body
Corporates to regulate ‘party houses’, excess noise and
damage to common property.
-
Tenancy Law – Residential Tenancy Law around
Australia prohibits tenants from sub-leasing the
property without the owner’s / landlord’s consent. If
requested to approve an Airbnb use, an owner could
reasonably refuse to consent because of the extra wear
and tear on the property. The Courts in Victoria have
ruled that Airbnb use is sub-leasing, and an owner is
entitled to terminate a lease because the tenant failed
to obtain consent for the Airbnb use.
Conclusion
The legal compliances are straightforward, and present no
real impediment to property owners.
Airbnb is rapidly expanding. During the last 12 months
Airbnb grew its US listings by almost 70% and its nights
booked increased 125% to almost 40 million room nights.
No comparable data is available in Australia, but its
success points to the fact that many property owners are
boosting cash flow from their properties with short-term
lettings.
For more information about
the current status of the law in these areas, click: What
laws apply to an Airbnb host in Australia? Click
for more
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