Holiday rental website Airbnb is disrupting the way holiday homes are let worldwide. Here in New Zealand it’s opening up a new avenue for investors – milking yield from spare bedrooms in their own homes as well as finding a new pool of tenants for their baches.

The website, which lists millions of spaces around the globe, allows private home owners to compete with hotels by offering rooms for rent on a nightly basis.

Making money from bach rentals isn’t new and many landlords let rooms in their homes or sleep-outs to “flatmates” or overseas students/boarders. However, Kiwi investors who have started using Airbnb and similar websites report receiving hotel-like rates for their spare bedrooms, making even the family home an income-earning tax-deductible proposition.

Investors who own baches, cribs and apartments are using Airbnb to supplement or in some cases supplant their Bookabach or Holidayhouses.co.nz listings. The worldwide bookings website transcends all markets from backpackers looking for a room, to corporate transfers, and holiday rentals – and can be used by investors alongside other booking services.

So far 8,000 New Zealand properties are listed on Airbnb. Of those, 48% are private rooms and the remainder are entire homes.

Rural Earner

Typical of an Airbnb host is Rotorua investor Debbie Van Den Broek who lets a small cottage at hotel-rates on her lifestyle property.

The Van Den Broek family made a staggering 81% yield over the past year on their Broekhaven Country Cottage.

The cottage was built on the family lifestyle property to house grandad. After he died Van Den Broek considered advertising for Residential Tenancies Act (RTA) tenants, but didn’t want them at such close proximity to her home.

Just how profitable the decision to try holiday rentals would be, came as a surprise to the seasoned Van Den Broek. She estimated that letting to long term RTA tenants would bring in $5,000 per year. In 2004, the first year the cottage became a holiday rental it brought in a gross rental of $13,000. Not bad on a cottage that cost $55,000 to build.

Currently Van Den Broek charges $250 per night for the first three people and $30 a night per extra guest. Self-service breakfast of fresh bread, croissants and Danish pastries is included in the nightly price and is delivered to the guests in the evening.

Living on the property makes managing it easy. When tenants are staying several nights Van Den Broek pops in daily to empty the bins. Tenants make their own beds and deal with their own dishes.

Animal Attraction

Between tenancies Van Den Broek employs a cleaner at $20 an hour to ensure the cottage is spotless before the next tenant.

Farm animals, which are kept to entertain guests, are one of the draw cards of Van Den Broek’s property. The tame chickens, rabbits and hand-reared friendly lambs are bought for the express purpose of attracting guests, making them tax deductible along with other costs.

Van Den Broek gets her bookings through a variety of websites including Airbnb, Bookabach, HolidayHouses.co.nz, Kidz Go New Zealand and others. Each targets a slightly different market, increasing the overall occupancy. Whilst Bookabach appeals to traditional Kiwi holidaymakers, it’s not as well known to international travellers as Airbnb. Other sites used by hosts include Look After Me, Kiwi HomeStay, BedyCasa, and HomeAway.

The cottage bookings are mostly synchronised through Beds24.com. Van Den Broek allows instant booking through the websites that connect to Beds24.com. Guests booking through the others must submit a request and she checks to see if the property is free.

Van Den Broek says the holiday rental does involve more work than a regular RTA rental, but there are fewer hassles. “You don’t have the Tenancy Tribunal hearings and tenants not paying rent,” she says.

A Nice Little Earner

Wellington investor Jonathan Shield* has let to RTA tenants for 30 years, but thought he’d have a go at letting a room in his own home through Airbnb.

The Airbnb rental is a studio attached to the family home, which was built to accommodate grown up children when they visit. It can’t be let as a standalone rental.

Shield says he heard about Airbnb through his Australian-based daughter, but also uses Bookabach and HolidayHouses.co.nz to maximise occupancy.

You don't have the tenancy tribunal hearings and tenants not paying rent. - Debbie Van Den Broek

Getting the room listed with Airbnb proved time consuming and problematic thanks to the need to be “verified” and not having a Facebook account. Once the guests started arriving, however, Shields was sold on the idea.

Letting to guests in your own home does involve work, says Shield. It takes him one to two hours to get the room ready for guests. For that reason he doesn’t allow one-night stays. When he receives a week-long booking it’s a real “woo-hoo” moment in the Shield household. They only need to provide breakfast daily and change the towels mid-week, but the money keeps rolling in.

Letting the harbour view room has been a learning experience for the Shield family. They started in 2013 charging $160 a night, but then experimented with lifting it. The strategy was to find the highest price point where their all-important feedback wasn’t affected.

Shield says it’s a “nice little earner” that brings in a lot more than the overseas student boarding fees he anticipated when he first approached the bank for a mortgage.

T For Tax Question

Whether it’s Airbnb or other booking sites, investors need to be aware of their tax obligations.

There isn’t a one-size-fits-all rule, other than the fact that owners who set space aside for a home office for the purpose of managing their bed and breakfast (B&B) or holiday let business can claim the costs against income from the rental.

Various rules affect the way Airbnb and other holiday let income is taxed. There is a lot of mis-information on Airbnb forums about the tax situation – including a widely held belief that B&B stays in your own home come under the boarding rules – making them tax free up to $254 a week for the first two boarders and then $208 after that for three or four boarders.

Not so Chartered Accountants Australia and New Zealand tax New Zealand leader Peter Vial says. “I don’t think that would be the IRD’s view at all,” he says.

A “boarder” is a member of the household who is staying for an extended period of time. Not a short term visitor, Vial says. “It would be hard to argue that Airbnb is analogous with boarding. (Boarding or flatting) is taking someone on longer term and sharing private expenses with them,” he says.

Logically the Inland Revenue Department (IRD) isn’t going to allow private home owners to not pay tax on their B &B income when old-style B&Bs pay tax he says. “Airbnb… is generally a B&B situation, which means the income is taxable.”

Whilst some owners recoil at the idea of paying tax on Airbnb stays in their own home, the reality is that they’re earning far more per night of stay than they would from a boarder or flatmate.

Claiming Back

Owners must collect, organise and record financial information for their tax returns. Typically investors letting rooms in their own home to holidaymakers can claim a portion of general household expenses according to the floor area of the room in comparison to the entire home, Vial says.

If the room in the home, for example, is 10% of the floor area of the home, then they can claim 10% of general expenses of running the home including power, cleaning materials, insurance, mortgage interest and lawn mowing.

Some costs, such as new sheets for the room, pillows, lamps and so on, may be deducted fully. The cost of breakfast ingredients can also be claimed 100% if they can be separated from the overall household budget.

It would be hard to argue that Airbnb is analogous with boarding. - Peter Vial

Maintenance and upgrades to the room costing more than $500 may need to be capitalised and depreciation claimed each year. A new carpet, for example, is likely to cost more than $500, meaning that even though it relates to that room only, it would have to be capitalised and depreciated over time.

Anyone who has a GST-registered property let as a serviced apartment needs to familiarise themselves with the GST rules. A hefty GST bill can result if the property is subsequently returned to private use.

Mixed Use Asset Rules

Tax on Airbnb and other rentals that are also used as a family bach come under a different set of rules – the IRD’s Mixed Use Asset rules.

These rules apply to properties that are 1) used privately, 2) let to short term tenants some of the time and 3) are unoccupied for 62 days or more. Owners can only deduct expenses for the actual days the home/apartment is rented out in this instance. Expenses can’t be deducted for the time the property is empty or let to friends and family.

The Mixed Use Asset Rules don’t relate to holiday properties let 100 per cent of the time to strangers and not used by family and friends. These are taxed as a standard RTA property would be.

Nor do the rules apply to rooms let in your own home because the “asset” is your house not the room and the visitors have access to the whole house, not just the room. Nor would they apply to a retired person who let their own home whilst away travelling overseas, providing it wasn’t empty for 62 days, Vial says.

Regulatory Hoops

As new markets emerge, regulations follow. New York, for example, cracked down on 15,000 Airbnb listings that were reported to be “illegal hotels”, according to the New York Post. A Stockholm Airbnb host was prosecuted for running a “hotel business” illegally. The case was seen as a landmark ruling in Sweden according to English language media.

Here individual body corporates could, in theory, put rules in place banning or curtailing Airbnb lets in their complexes.

“Some body corporates prohibit holiday lets [since] the arrival of Airbnb,” Crockers team leader Carly Edwards says. “Given that Airbnb is a relatively new occurrence in the world of bodies corporate we are likely to see more debate on this subject as bodies corporate deal with requests and/or issues that may arise.”

Some councils have also put limits on Airbnb and other lets. In Auckland, for example, the council’s Auckland Isthmus District Plan requires one carpark for every bedroom for rent as “visitor accommodation” and owners need to check if room letting is permitted in their city zone. If not, they will need resource consent. In theory the council could enforce this, putting Airbnb owners out of business.

In Queenstown 181 rooms are let with Airbnb, nightly rental prices ranging from $41 to $525. The Queenstown Lakes District Council has rules governing the letting of holiday accommodation. Owners living in low and medium density residential areas are only permitted to let their properties for up to 28 nights a year. Between 28 and 180 nights they need to provide a management plan to the council covering such issues as the number of guests, parking, and noise. Over and above that they need to apply for consent as a non-complying activity. Home owners who break these rules can have fines of up to $300 imposed or be ordered to cease operating. The council is currently reviewing its District Plan including its rules for the provision of peer-to-peer accommodation.

Wellingtonians get an easier time from their council and can rent out rooms on a daily tariff basis for up to four travellers as a “permitted activity”, Wellington District Plan manager John McSweeney says.

Investors need to check the rules in their own council areas and if they are part of a body corporate, with the body corporate secretary.