Optimising occupancy and pricing

Hi all
We have recently purchased a property on the Sunshine Coast that we intend retiring to in the next 5 years. It is upmarket and close to the beach and it was snapped up as a permanent rental for $800 pw. This nets us close to zero holding costs after tax, though we are on P&I so cash flow negative. It is our only IP and we own our PPOR outright so we are comfortable with our financial risk position. We purchased the property because we want to live there - not for capital gains speculation or yield.

When the current 1 year lease runs out we are considering putting the property on AirBnb or similar. The area we purchased is popular for holidays / short stays and looking at similar properties we should be able to get around $4.5k / week / peak and about $2.5k/week/offpeak. We, perhaps naive, thought is that if we price it right we could a achieve approx 35% occupancy and get similar returns to permanent rental with the added benefit of having access to the property now for 65% of the time. The property would be available 100% of the time for rental so should remain decuctible so I understand this means our access will be mostly offpeak times and su ject to bookings.

Does anyone else have similar experience managing an Airbnb for optimised lifestyle rather than financial optimisation? Any thoughts on pricing, minimum durations to get us to a breakeven position?

 

You will not be able to claim for the days you occupy, so won’t get 100% deduction of all expenses. You will have to keep a diary of the days you occupy to proportion fixed expenses. The ATO are right on top of this.

Check management and laundry costs if you are not prepared to do these yourself.
Marg

 

Are you going to do the management yourself? Or have a PM?

While something like this can work, its either going to be a lot of your own time and effort, or a lot of fees paid to a PM service.

It also sounds like it might be a lot money that needs to be spent on furnishing the place?

 

We were going to do the PM and cleaning ourselves. My wife works part time so we were going to put it on for 3 day minimum stays, and then drive up and clean (and stay a few days) between tenancies.

My understanding was that as long as it was always available for rent then it would be 100% deductible?

 

Why not secure a long term tenant, have the property competently managed, alleviating undue stress, and when you wish to frequent the area, stay in holiday accommodation yourselves.
Then when you are ready to move there permanently simply align the lease end with your move in.

 

Not if you are staying there.

However, as always, check with your accountant.
Marg

 

If you were staying in the property it wouldn't really be available to rent. I think the ATO might have an issue with this so you would need to research their views on it.

 

Technically, I would be staying in the property (occasionally) when there were no tenants to prepare the property for the next tenancy. It would be 100% available to rent.

I am gathering by the responses that permanent rentals are > short term.

We are on the cusp of being empty nesters so dont mind the "interaction" with guests.

We could also potantially depreciate some new furniture before we move in?

 

Does this mean you dont do back to back bookings? What happens if a guest needs something during their stay? How far away are you?

 

The one good advantage of doing short stays is you can use it yourself, you just need to let your accountant know how much time you use it for(when it is unavailable to rent) and they work it out as a percentage over the year and thats what you lose.If you use it for 20% of the year pretty sure you can only claim 80% of the total deductions.
You can only claim for the period that it is available for rent, but not the time that you use it for.
If you allow family and friends to use it for free then its also classed as unavailable for rent
If its in a good area with very high occupancy rates during the peak season, you should be able to generate some pretty good returns during the peak holiday season.
Unless you live close by probably better to get someone else to manage it and handle the cleaners and linen.
If everyone is trying to undercut each other, it might be better to leave it as a long term rental.
But in the right areas you should be able to generate really good returns for about 2 months of the year, but thats only in areas with high occupancy levels in the peak season.
Management costs might be around 20% and on top of that you pay clean and linen costs at each changeover, but they handle everything and that includes having their own tradies and handymen on speed dial if something is broken or any electrical or plumbing issues
One night bookings are a complete waste of time, but if its in the right area you can charge higher weekend rates, it all depends on the occupancy rates for that area and what the market can bare.
Have a look at the local real estate agents , many have their own holiday booking websites and then are resold on other websites, Stazy/Homeaway,airbnb and Booking.com etc etc.
Have a look at places similiar to yours and look at the booking calender, it will give you a rough idea on future bookings(nights unavailable), although they might also be owner bookings??.
Many areas have different rates depending on the time of the year, School Holidays, Peak ,off peak,shoulder, low season high season etc and the rates can vary a bit.
You might get 4K in school holidays in the peak season but then drop by 50% off peak in the middle of winter.
But if you can get 3-4k a week for 8 weeks and it covers most or all of your expenses then it allows you to also use it frequently, especially if your PPOR is also payed off.
Otherwise it might be better to leave it as a long term rental and furnish it as you like, when you decide to move in permanently.

 

We live 40 min away - assuming the M1 is not gridlock.

3 night min stays mean we should get predominantly Fri/Sat/Sun or longer bookings. If we get back-to-back bookings then we will use a local cleaner.

 

40 min away is very do able to self manage.
If the market is there to continually get 3 day weekend bookings then great , but many people will only put in the Friday and Saturday night for weekends away ,so your property might not even come up.
Most of the better booking websites have "booking rules" and you can put in a higher weekend rate(lets say 2.5x instead of 2 for a 2 night weekend stay).
3 night weekend stays might work on a long weekend, but an empty house/unit/apartment generates zero dollars

 

Thats why we were considering 3 night minimums and mid to high rates when compared to similar properties. Xmas and easter people tend to book 1 week + family holidays and targeting 35% occupancy should give us reasonable returns without constant back to back tenancies.

 

Long minimums and mid to high rates will mean your property remains empty, particularly a new property with few reviews.

Friend has an Airbnb and had a phone audit from the ATO. First thing they had already looked at were the rates charged and the conditions to see if the intention was for it to remain empty. He was at the mid-low pricing level, and minimum was 2 nights, considered appropriate. He had detailed his occupancy, keeping a diary of dates, which he emailed to the auditor, and had correctly adjusted deductions. Passed with flying colours!
Marg

 

Given the new depreciation rules on plant & equipment, if you use this privately, after a period of time this private use may make these items non-deductible.
This would be worth checking with Depreciator, BMT, Washington brown for more specific details but worth being cautious of.

I think there are PM for Airbnb who do the whole lot including advertising, pricing, greet/vet guests etc - I thought I heard around 15% on podcast from madecomfy but please check if that’s right.
Cleaning etc likely on top of that.

Good luck!

 

I think you have a great idea @Transition

We have three airbnb properties and one which is a very similar to what you are proposing- as in we rent it out when we can but spend time in there when it's not being used (and sometimes if we feel like a weekend away). We are in Sydney and the property is in the Southern HIghlands so it's not feasible for us to clean. Some general observations:
- Like many have said here, cleaning is not fun especially when you have an 80 minute round trip. Most booking sites charge a cleaning fee that can cover some/ all of the cleaner so let a cleaner do this- it's worth it! Even if you don't charge a cleaning fee, the premium you get over a traditional rental should more than cover it.
- Don't pay a manger to manage it- you can do this yourself. Sign-up to smartbnb which does auto messaging- saves heaps of time and is only $25 a month. Also get a self check-in option so you don't have to pay someone to meet guests.
- Put a 2 night minimum, 3 nights will cut out a lot of people.
- Don't expect just to get weekend bookings (we thought the same). We have suprisingly ended up with many weekday bookings (even though it is a holiday destination)- whether it be city dwellers seeking a mid week getaway, people working in the area, overseas people on holidays... I would say we get at least 3 mid week bookings a month for our country property (and for our two city properties we have ~90% occupancy)
- Our airbnb income more than covers our motgage repayments and is 2-2.5x what we would get with a traditional rental
- Airbnb can be stressful but the money is absolutely worth it. The money we receive covers all expenses and gives us a country getaway which we can duck away to whenever we want, essentially for free.
- But get a cleaner! Otherwise you will just end up resenting the place