which structure airbnb host can protect themselves

Discussion in 'Airbnb & Short Term Letting' started by henry Sunshine, 28th Oct, 2020.

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  1. henry Sunshine

    henry Sunshine New Member

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    Hi everyone: I has been on a holiday trip to New Jersey near New York last year and stayed in 1 home stay there. I have a good talk with the host who told me how he changed his house to 3 areas rented to airbnb guests and get more income.

    After coming back, I did renovation for my rental property in Melbourne last year and changed the house to 2 separate areas: one is 2 bed 1 bath unit with kitchen, the other is one room with own bathroom/own bar fridge and microwave but no cooking. This worked well from last Dec to March 2020 as airbnb.

    Then covid arrived and I notice the guest quality dropped. There are no international guests or even interstate guests. One friend is also doing airbnb in Melbourne. He recently encountered bad local guests( one use it for party, another use it to smoke drug with girlfriend, another couple burned the quilt and pillow).

    I start to feel the risk of airbnb as host: what will happened if the place catch fire by careless guest? What if guest is injured( or pretend to be injured ) during his/her stay? Currently the property is under me and my wife name. we do airbnb under my wife name. Does it help reduce risk if we use a company to register with Airbnb, the income into company bank account?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    insurance that covers these things
    do everything to mitigate negligence
    sublease to a company which contracts with customer
    transfer ownership to a company
    get someone else to be a director

    in order of importance.
     
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  3. henry Sunshine

    henry Sunshine New Member

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    Hi, Terry: thanks for your advice.

    Insurance that cover these things: insurance cover normal tenancy. It may not cover these airbnb as it is short term lease.

    Yes, We will try do everything to mitigate negligence.

    "sublease to a company which contracts with customer" how it work? You means we write a lease agreement and lease to a company which is controlled by myself( me as director). Then use the company to register with airbnb. Can you provide more details?

    Transfer ownership to a company: this can be costly. It will trigger stamp duty and capital gain tax. This could make airbnb not profitable.

    Get someone else to be a director: That means we transfer the property to a company which is controlled by somebody else. That will not work as we could lose the property if a director want to take over the ownership of the property.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This wasn't advice, I just mentioned a few things that you could potentially do to reduce the risk. I wasn't recommending you do any of them.

    re the last one, you must distinguish between shareholders and directors. Directors don't necessarily own anything.
     
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  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Remember that the property use may be classified in many areas as illegal. Changing the internal use without approval and certain mandatory requirements is generally illegal and requires approval. Council could impose penalties and order evictions and no structure will help as the legal owner is liable. Same with insurance. No insurance could be a consequence too of illegal use or use that is inconsistent with policy terms which often refers to a "lease" / tenant. Often illegal property use is detected by fire brigade etc. Or a annoyed neighbour etc. Police even.

    Injury is a matter a sound policy may cover but as you cant have a residential tenancy lease you may also lose some protections which come with a lease. Have you considered a short stay policty like EBM offer ?
     
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  6. Perp

    Perp Well-Known Member

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    Airbnb includes host protection insurance for injury (Host Protection Insurance | Airbnb®) and Host Guarantee (Airbnb’s Host Guarantee | Airbnb®) for property damage.

    What are you concerned may not be covered?

    (Obviously if the use isn't legal - compliant with building code and planning laws - you jeopardise the validity, but that will be true of pretty much any insurance or risk mitigation strategy.)
     
    Last edited: 31st Oct, 2020
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  7. Marg4000

    Marg4000 Well-Known Member

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    Has your insurance company consented to cover you for short term leasing?
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Thats not building insurance. eg Property burns down due to an accident. With a occupant...or while vacant ?
    Loss or damage (fire)
    Public Liability ?
    Flood ?
    Earthquake
    Storm & Lightning
    Impact
    Vandalism and malicious damage by a third party (walking past)
    Tree falling onto dwelling
    Bushfire
    Gas explosion
    Flooding from the neighbour (they are uninsured)
    Accidental damage option

    Many dont get paid for Host insurance as the damage is caused by a guest of a guest or it cant be proven that the guest caused the damage.
     
    Last edited: 2nd Nov, 2020