AirBnB & holiday investment build checklist
If you’re planning to build an investment property, particularly in the Newcastle and Hunter region, it might be worth considering a holiday rental as part of your investment property strategy.
An AirBnB or holiday letting can be a lucrative, dual-purpose investment, offering potential for high income and personal use. Long before you start imagining your online listing, be mindful that there are plenty of considerations to make for this type of investment as well as its ongoing management.
Read on for our trusty checklist.
Country or coastal?
When choosing a location for a holiday letting the investment property builder should think about which will offer the best Return on Investment. When calculating your ROI, consider the entry price of land versus the potential nightly rate.
While coastal properties offer the summer boom they can suffer ‘ghost town’ syndrome in the winter and the land entry price is typically much higher which can compress your rental return. With this in mind, focus on purchasing land in high-demand tourist areas within a 2-hour drive of a CBD for your holiday rental — like the Hunter Valley.
The Hunter Valley, with its world class wineries and year-round wedding industry, offers a constant flow of tourists. Land is often more affordable than coastal strips, allowing for a better ROI when you factor in the high demand for premium holiday rental accommodation near the vineyards.
There is less seasonal volatility in the Hunter Valley as opposed to a coastal investment because there is something to do all year round from the Spring Festival of Flowers and the lure of hot air ballooning to the Summer harvest time and outdoor concerts. Autumnal vine leaves ablaze with colours and cool Winter months are perfect for cosy fires, fewer crowds and the Winter Wine Festival. There is definitely a growing demand for more diverse options other than resorts so maybe it’s time to build an investment property in the Hunter Valley?
Financing your build
While it can be a fun and exciting venture, a successful holiday letting requires a serious investment property strategy. The way you intend to use the property significantly impacts your borrowing power. If the bank views the project as a commercial enterprise – especially if it falls under ‘tourist accommodation’ – it may require a commercial loan which demands a higher deposit (often 30% or more). If you can secure an investment or residential loan, you might get away with a 10% or 20% deposit.
Looking ahead, it’s worth keeping in mind the tax implications of your investment. If you sell within 12 months of purchase, the full Capital Gains Tax is added to your income, with no discount. Whereas by holding the asset for more than 12 months, you are generally eligible for a 50% CGT discount, meaning only half of the capital gain is added to your taxable income.
Ongoing costs
A short term holiday rental is an active business not a passive investment. As a property developer, you need to decide whether you manage the day to day running of your holiday letting or if you should hire a specialist firm. The advantage of DIY management is that you keep 100% but you also take on 24/7 guest communication, cleaning coordination and maintenance. The pressure is on you to ensure that five star rating for your AirBnB.
If you choose to outsource the management of your holiday letting you should expect to pay between 15% and 25% of your gross revenue. However a good manager deals with the operational stress, and should optimise your listing to ensure the desired rental return.
Consider local council requirements
When you build an investment property intended for holiday letting, you face a critical choice in how you categorise the build. Submitting the Development Application as tourist accommodation can be a lengthy process because council considers it the same as a hotel. This means even a small dwelling may be required to meet commercial-grade safety standards including disability access and specific parking ratios.
A property developer may prefer to submit the DA as a dual occupancy or a single dwelling investment. While this is often a quicker approval process, it’s important to check local zoning laws. Some councils have strict caps on how many days a residential property can be used for short term holiday rental before it requires change of use.
When you’re ready
While we encourage any property developer to build an investment property for short-term holiday rental or holiday letting, the advice supplied here is general in nature. It’s wise to speak with a financial advisor or tax agent for further guidance regarding your specific situation as well as consult the relevant council for local planning and building requirements.
If you’re certain about your investment property strategy and you’re looking for a Hunter Valley builder, call Valley Homes. With over 50 years of experience in the building industry, Valley Homes is the investment property builder to help make your holiday rental vision a reality. Call us today.
Please Note: the contents of this article are general in nature and do not constitute financial advice – consult the relevant council and your financial advisor or tax agent for further advice as it relates to your specific situation.