I’ll admit that I struggled with an appropriate title as the above one is certainly clunky, but I wanted to share some tips on how to rent your investment property out on a short-term basis, similar to an Airbnb type setup.
My pet subject is depreciation, so I’m not going to let you get away without reading some key issues about deductions and short-term rentals. However, I’ll start with the fun stuff.
The steps to making an investment available as a short-term rental
You can certainly manage this process and the leasing component of this yourself, but I’d be inclined to find someone to help you with this. As exciting as it might sound to become an Airbnb or short-term rental billionaire, you’re going to need to get your hands dirty. You’re going to need to field questions about, and handle much of the following items listed here which are not limited to;
- Guest enquiries about potential bookings
- Guest vetting to make sure they’re well behaved
- Confirming bookings and collect accommodation payment and security deposits upfront
- Check-ins and check-outs
- Property maintenance
- Professional cleaning after every check-out
- Laundry and providing fresh hotel grade bed and bath linens
- Restocking guest amenities e.g.; toiletries and cleaning products after each check-out
I’m certainly not trying to scare you off, but in my experience, these are the last things people think about when they’re in the exciting feasibility stage.
As for the steps to getting it online, you’re going to need to do the following;
- Furnish the property
- Dress the property with soft furnishings and artwork to make it stand out
- List the property on all the major booking channels (which will require photography)
- Design property manuals with instructions on how to use items at your property, tips on what to do in the area, property rules, and exit instructions. You’ll probably even need to buy a bloody laminator!
Short term rentals can be an awesome way to boost your rental yields, but the property needs to fit the demands of the location, and not all locations are certainly created equal. There are companies such as Quickstay, who specialise in Airbnb property management in Melbourne that can handle the whole thing for you and provide advice on whether your property is going to be a good fit. I should probably give them a plug anyway, lest they come after me for stealing some of their points from one of their articles!
Ok, now it’s time to eat your vegetables and read about the depreciation considerations. I promise you that you’ll learn something.
What you need to know about depreciation and short-term rentals
Short term rentals typically have great deductions because of the furniture provided. Sure, the original structure can qualify for division 43 deductions if the property was built after September ’87, but the plant and equipment items are the real kicker. It’s not just the loose assets like furniture we’re talking about either, it’s also the carpets, blinds, air conditioning and the like. However, due to the high rates of depreciation on the furniture items, they do give you a real boost.
However, it’s not always that simple. You see, in May 2017 the game really changed. If you purchased your investment property after that date, you’ll only be able to claim those juicy plant and equipment deductions if you bought the property brand new. Luckily though, there is still one way you can get those plant and equipment deductions for your furniture if you bought an established property after May 2017.
How can you claim plant and equipment deductions on furniture if you purchased after May ’17?
You get them by installing the furniture yourself. Now I don’t mean you physically get your Allen key out and put it together, or indeed physically place the lounge into the living room with your own personal brute strength and brawn. Technically all you need to do is buy the items brand new and install/have them installed into your income-producing property.
So long as you do that, you can claim the plant and equipment deductions on the furniture almost exactly as you used to in the good old pre ’17 days.
You may have noticed a few little choice definitions and italicised bits above. The first one was ‘income-producing property’. If you put new furniture into a property, you need to ensure that you don’t kill off the deductions by residing in the property. You can mess this up if you’re living in the property and you put the furniture in before you move out, and you can actually kill off the deductions if you stay in the property yourself in a way that the ATO considers more than ‘incidental or occasional use’. For example, the ATO states on holiday homes that;
“Spending a weekend in a holiday home or allowing relatives to stay for one weekend in the holiday home free of charge that is usually used for rent would generally be occasional use.”
So, it’s important to note that anything over and above that is going to likely result in the end of your depreciation claims.
Outside of the above, there are things you need to understand if you’re looking to rent your principal place of residence short term, but I’ll leave that for another article. I will say though, seek an accountant’s advice first.
Hopefully, this article gives you some tips to start you off in the right direction, but I’d certainly recommend speaking to your accountant and seeking the advice of an expert in short-term rentals. If you do decide to go down this path, best of luck and here’s hoping nobody pinches your spoons!