Rental Arbitrage in Sydney | What You Should Know!

If you are looking to invest in a rental arbitrage in Sydney, but not sure where to start, let’s take a look on:

• What is Rental Arbitrage?

• Getting to know Sydney

• What is the requirement for a short term rental in Sydney?

• Taxes and Fees in Sydney

• Key Takeaways

What is Rental Arbitrage?

Rental arbitrage is a way forward in operating an STR business without actually owning a property and earning an income through real estate. With that said, it allows you to host a wide range of spaces from an entire house to private rooms or even a shared room and list through platforms such as Airbnb, VRBO, Booking.com, etc.

Moreover, it is perfectly legal as long as you abide by the specific laws and liability guidelines in your region.

Getting to know Sydney!

Sydney is one of Australia’s top destinations attracting both local and international travelers. It welcomed over 26.6 million in June 2021 and 87% overnight stays with an average spend of $223 per night (National and International Visitor Surveys, Tourism Research Australia).

More so, Sydney offers a variety of attractions such as the well-known Opera House to Sydney Harbor Bridge, Bondi Beach, and so much more. Never forgetting, Sydney’s fair share of hidden gems and international cuisines it offers.

Why Sydney?

• There is a demand

• Interest rates are low

• Virtually any market may be quite profitable

According to AirDNA data 2021, there are about 9,188 active rentals with a daily average rate of $220, accumulating 48% occupancy rate, and monthly revenue of $1, 812. More so, the Sydney property market has been one of the strongest and most consistent performers experiencing 25+% house price growth.

With that said, Sydney is consistently growing to make it a great opportunity for investors and property managers to consider extending or investing in rental arbitrage in Sydney. It also has been proven to be one of the profitable and lucrative markets in the vacation rental business.

What are the Requirements for a Short-term Rental in Sydney?

New South Wales (NSW) Short term rental accommodations (STRA) are required:

• A statewide planning framework including STRA register

• A compulsory Code of Conduct that applies to all industry participants including hosts, booking platforms, guests, letting agents and facilitators

• Strata by-laws that restrict certain types of short-term rentals

From January 31, 2022, these regulations will also include Bryon Shire local government areas (LGA) where hosts can register their STRA dwellings beforehand.

STRA Planning Framework and Registration

NWS Government introduced a statewide planning policy for STRA effective from November 2021 which includes the following:

• Registration: Hosts are required to register and obey the new STRA Fire Safety Standards.

• Fee: $65 for the first 12 months $25 annual renewal fee

• Day Limit: Hosted and unhosted STRA listings can operate all year round across NSW with bookings above 21 consecutive days are exempted from the day limit. Though, this does not apply in Greater Sydney and nominated regional NSW local government areas where unhosted STRA listings are limited to 180 days per year.

What kind of Short-Term Dwellings are not Permitted?

Under the new law, the following dwellings that are not considered STRA are:

• boarding houses

• seniors’ housing

• rural workers’ dwellings

• group homes

• hostels

• refuge or crisis accommodation

• build-to-rent housing

• co-living housing

• moveable dwellings: caravans, tents, or glamping accommodation

How to Register: A Step-by-Step Guide

1. Add your property to the NSW STRA Register

• Visit NSW Government’s Planning Portal

• Register an account and log in using your Service NSW account to complete the online registration form.

• Pay the registration fee and submit your application

• Once submitted, take note of the registration number which will be needed for your Airbnb listing.

2. Add your STRA Registration number to your Airbnb listing

• Go to your Airbnb Host account page once you have received your registration number

• Click on your listing then Policies and rules> Laws and regulations> Regulations

• Add the number into the Airbnb Registration number field

• Click Save

3. Change your listing status to "Listed"

• Once saved, return to your listing page

• Go to your Listing Details> Listing Basics> Listing Status> Listed

Note: Registrations are renewed annually in the NSW Government Planning Portal. If your renewal after your registration has failed, it may be subjected to fines, penalties, or removals. Additionally, if registration has been denied, the NSW Government will provide further support and communicate the outcome of your registration.

Exclusion Register

A host or guest may be placed on the exclusion register for non-compliance with the Code of Conduct. However, hosts are required to guarantee guests listed on the Exclusion Register are not able to complete a booking.

Taxes and Fees in Sydney

Goods and Service Tax (GST)

In general, Goods and Services Tax or GST is broadly based on consumption tax assessed on the value added to goods and services, with a 10% applicable. Though, different rates or even an exemption may be relevant depending on the service provided.

To assess the GST consequences of the experience, offer if:

• Local Australian residence or;

• If not residing in Australia, but the country where you offer your experience in Australia

To understand Australian Taxation, it is best to consult a tax advisor in your local area, if need assistance assessing your GST and for further information, visit the Australia Government Australian Taxation Office portal.

Income Tax

All hosts in Australia earning an income are required to pay income taxes and comply with the tax regulations in their area. Highly recommend speaking to a tax professional to seek advice on income taxes, if necessary. For further understanding of your income tax responsibility, please visit here.

Tax Deductions

Note that, as a host, all your earnings are taxable as income. The good news is that it has its tax perks such as claiming expenses and depreciation for the percentage of the area of the house that will be given as a short-term rental. More so, this also includes:

• Interest on your mortgage

• Amount paid to other services like restaurants, entertainment venues, insurance costs

• Water, power, and council rates

• Internet and phone costs

• Upkeep and repairs

• Reduction cost on furnishing and equipment

With that said, as a host, in claiming expenses appropriately, it is important to ensure to keep a detailed record of the expenses for tax deductions.

Key Takeaways

Understanding market research, laws, and regulations is a highly valuable asset in strategizing your rental arbitrage business in Sydney. With the data collected, you can grow your rental arbitrage by:

• Identifying problems

• Predict future trends

• Make informed decisions

• Implement evidence-based strategies

If you are interested in rental arbitrage in other countries, check out top markets such as the US, UK, Spain, and Mexico. Also, take the time to do market research and understand its laws and regulations for that particular region.