You have significant obligations to a number of parties
In our Autumn/Winter edition (No 24) we discussed the tax aspects of being a host with Airbnb or other online accommodation platforms. With the Christmas holidays coming up we thought a reminder would be useful if you’re an existing host (or you’re thinking of letting your house/room) about obligations to your lender, insurer and local authority.
Before becoming the host-with-the-most with phenomenal reviews, it is important that not only do you understand the IRD’s requirements, but also that you are aware of your obligations to other ‘parties’ involved in what is your accommodation business.
We have set out some key points to check with your lender, insurer and local authority.
Income: Positive reviews from your guests are well and good, but your lender is more interested in positive income flows, especially if you are looking to finance your next project(s) and considering additional expenditure on your property.
Loan to value ratio (LVR): In October 2016, the Reserve Bank tightened regulations on major banks that restricted their lending to no more than 80% of the purchase price for an owner-occupied property; it dropped to an LVR of 60% for purchasing an investment property. The impact of this will be apparent when you speak to your bank for any new lending against your property or restructuring your loans, and it may be that you cannot borrow more until you have a larger amount of equity across your properties.
How do you ascertain what is an investment property? One bank defined this as a property occupied by someone other than the owner for more than six weeks in a year.
Occupancy: You should always inform your home and contents insurer if there are changes to the occupancy of your property. Not only does this include hosting Airbnb visitors, but you should also notify your insurer if you’re either away from your property for some time (that overseas trip!) or if you have house-sitters.
The usual precautions apply for when you have strangers in your house – secure your valuables, give your visitors a separate alarm code and so on.
Claims: Always make sure you are familiar with your policy document. Besides the above information on occupancy, there may be hidden loopholes that insurers can use to avoid claim payouts. For example, contents policies can include terms such as ‘additional excesses’ or ‘refusal of cover’ if you have not resided in your home for more than 60 days.
Also, if your house is damaged multiple times by your visitors, your insurer may consider these as separate claims with individual excesses.
Local authority obligations
We talked with some local authorities on their visitor accommodation policies and the impact they have on homeowners’ rates. These policies differed significantly. They did, however, each have the same primary objective of placing an increased rates obligation on homeowners who have a higher use of public utilities such as water/transport.
To give some context to our discussions, we list Auckland and Queenstown as examples of two major Airbnb/BookaBach hubs.
Auckland Council imposed a ‘targeted accommodation rate’ from 1 June 2017 that is factored into the annual rates levy. A property transitions from residential to commercial when occupied by visitors, rather than the owners, for 90-plus days in a year. Resource consent for visitor accommodation is determined on a case-by-case basis. Although the website does not provide much information about the rate, you can find information here about how to have the accommodation provider rates remitted.
The Queenstown Lakes District Council provides clear guidelines here regarding the requirements for resource consent, and whether hosting activities trigger a rates increase of at least 25%. It also requires letting homeowners to register as a homestay or holiday home when certain criteria are met; you can find that information here.
We want to stress that the above information may differ from the policies of your own particular lender, insurer and local authority. Before registering your room or rental on Airbnb or other similar accommodation providers, check your property purchase documentation and talk with your local authority about any limitations on these activities. If you have any further questions or concerns, be sure to consult with us before you host your first guest.