NSW Potential holiday rental in Shoal Bay

Hey everyone,

I'm in my 20's and have saved a decent amount for a deposit on a $1m property. Living in Sydney, I am utterly frustrated by what $1m buys you here and the dismal rental returns one would receive. I also don't entirely buy-in to the 'property prices always go up' mantra, but that is a discussion for another day.

I've spent a considerable amount of time looking at alternative options, and I am leaning towards a holiday rental in Port Stephens. I have found the following home in Shoal Bay, and am currently waiting for the agent to come back to me with further details on a price guide, rental appraisal, building/pest etc.

https://www.realestate.com.au/property-house-nsw-shoal+bay-135774966

My guess is that the price will be somewhere between $850k-$1m. Assuming a $1m purchase and a loan of $800k, monthly loan repayments would be ~$1,700. I am currently doing some research on holiday rental management agencies in the area, but my initial view is that I should be able to net $30k/year, or $2,500 per month, as an absolute minimum. I believe this would in fact be higher, somewhere between $3-4k per month.

While it's impossible to predict what the place will be worth in 5-10 years time, the cash flow is incredibly attractive, as it allows me to cover the mortgage repayments and use the surplus to find a decent rental in Sydney. I'll then be able to save a significant % of my salary, and start saving again for another purchase.

The specific property (above) ticks a lot of boxes - decent sized land, good proximity to beaches, has a pool and is already set-up for holiday rentals with strong forward bookings.

Look forward to hearing your thoughts on the property, my strategy and anything else you want to share!

 

• Holiday rentals attract a higher management fee (often 20% + gst)
• Advertising
• Outgoings are higher - cleaning, linen, water/power/internet/pool maintenance/consumables/garden/window cleaning are all included
• Property is fully furnished - constant replenishment of glasses, utensils, plates, damaged furniture, blunds
• Seasonal business attracting different returns summer/winter, long weekends, school holidays etc

All of the above items will chew into your returns (you still need to pay for insurances, rates & normal maintenance, holiday renters are harder on properties so you'll require more frequent painting, exterior cleaning, harsh salty environment).

 

I lived at the other end of Tomaree Road for 17 years, below are my observations of living there over that time.

1. The holiday season has increased to September/Easter - was much shorter when we moved there 1999. May to August was quiet with not many visitors.
2. The market was slow to follow any increase in prices Sydney, but fell almost instantly when the market slowed. I cant believe the price of homes ATM, my house fetched a high price when sold because it had 4 bedrooms, the agent told me there aren't many homes in Shoal Bay with 4 bedrooms.
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My concern would be vacancies between May to August and what will happen when people can travel around Australia and overseas. The area has been packed this season - it will always be popular for visitors but will the numbers remain the same?

I left Shoal Bay 5 years ago and one of the reasons for leaving was the quality of life. During the holiday season you could not park to shop at Nelson Bay or Salamander, I gave up walking from my home to Fingal beach for 6 months of the year because of the crowds on the paths and beach, as for parking same for my favorite coffee shop.

Traffic was also a problem, there is only one road out of Fingal Bay and Shoal Bay and during Christmas there were traffic jams from Shoal Bay to Nelson Bay.

As to harsh salty environment, we lived there for 17 years and neither our house or cars were affected.

But I do miss the walk to Fingal Beach in Winter

 

Coastal holiday rentals can be very problematic and very inconsistent rents occur. Its Shoal Bay, not Port, Coffs or a major centre and they struggle. The present covid issues may make it appear far more rosy than it is normally. Many have converted holiday lets to permanent as the income is more consistent over 52 weeks rather than high for 12 weeks and vacant for 25 weeks with a few in between fillers. Many clients holiday rentals have occupancies of 20%-40% of the year normally with certain periods reflecting 80% of rents eg Christmas, easter etc command high value rents where off-season you can offer $100 a night and have no takers. Outside those periods expect high vacancy. And high costs for cleaning, linen and other services on changeover. Maintenance incl gardens, lawn etc and the pool !! will be very high (Airbnb have a policy of pools being cleaned at each changeover by a pool company) Many of the local agents will have loads of property on their books. And a high fee. Its doubtful any existing short rental will be sold and be readily available as you expect. Some of the best short stay returns are those where the owner lives nearby to self manage changeovers and costs down by as much as 40%.

Some lenders will apply a low % to income where a leased property they may allow all the income and costs towards servicing. Discuss with broker on specific lenders approaches. Some lenders also may have lower LVR % for certain postcodes in regional areas.

Growth in coastal areas is far less than cities. It tends to go boom/ bust or have long periods of stagnant change. The past 10 years growth data may show the last year is a exception to flat growth
https://www.realestate.com.au/neighbourhoods/shoal-bay-2315-nsw

 

Interested to know if Freddy bought the place

We bought our place in Port Stephens did a full reno and currently let it out through Airbnb and so far its been a winner for us,
Property value has gone up significantly in 18mths and the rentals have been consistent from Nov through to April. Bookings already in place for Nov / Dec 2022 but until they pay it cannot be counted as they can cancel at anytime and covid did dampen the bookings prior to Nov,

For us the downtime is when we use the place, so if its free we jump in the car on a Friday night and wake up in a beautiful beach side house, Swim, fish and Kayak the weekend away, on a Sunday we have a early dinner, shower the kids and head home with little to no traffic and back to reality on Monday feeling refreshed.

 

In the last Airbnb property I stayed in, the owner had kept the master bedroom locked up, as they use it when there are no guests. Just interested to know, do you keep a room locked up with your essentials in your property, so you don't have to lug everything over when you wish to stay there for a short visit?

 

We do have a walk pantry off the kitchen which we keep all of our bulk supplies to top up between guests and some of our own items, the rest like our towels and linen we store in waterproof tubs on a rack in the lock up garage, so far no issues.

We don't lock our master room and they have access to every room except the pantry

P.s
i also usually drag the boat up with me so a quick pack and we are ready to go its a 2hr 15min drive

 

Just ensure you keep excellent records of those dates. The ATO know, expect and test for the issue. If its vacant it does not allow it to be deductible if you use it. Often the ATO will also consider if rental is predominat on weekends and their adjustmnet can disallow a whole week not just a few days. You cant argue it was vacant anyway. Its not vacant if you use it privately. And its also not available. Or friends, family etc. Without good records of your use the ATO can cancel any net rental loss if they believe the private use isnt properly calculated based on records. I strongly recommend short stay records consider private use so accurate adjustment for private use can be shown.

The ATO commonly will call into question whether its actually a income producing private dwelling v an investmnet property. ATO staff will spend more time when they suspect issues and will dig and dig without much care for the time it takes to nail people. Btter to have records you can show so they see its not a issue. It obviously comes at a cost of 'lost deductions" but these add to the CGT cost.

 

Paul, if I had an Airbnb property and 30 weeks of the year it has guests in it, I use it for 10 weeks and it sits vacant for 12 weeks, how will the ATO know the breakdown of this usage, without me declaring it? Check with the neighbours? Accessing my phone records from my provider? Send out a private detective?

I know people who buy luxury cars in their company names, write these assets off in the company balance sheet and show ongoing expenses (fuel, serving, rego, insurance...etc) against the company income. And I know they use these vehicles for considerable amount of personal use. Is ATO tracking their mileage for business and pleasure?

 

HI Paul

Very good advice and actually backs up our accountants advice when we were looking to purchase, my wife controls all bookings and we have personal days locked out and marked ready for tax prep time.

We will have days when i have to go do repairs, maintenance but will have vehicle log book, Bunnings receipts from local Bunnings and photos just as a back up to prove cost in case we do get a please explain from the ATO.