Jessica Satherley 29 Jan 2021
Categories
Property

Expert recommends always maintaining 80% of market rental rate.

  • Expert recommends always maintaining 80% of market rental rate 
  • Most holiday home management companies will take 20% commission fee 
  • Weigh up your fixed costs and mortgage payments to evaluate what you need to charge to have a cash-positive property 
  • One owner only lets family stay free of charge if the property is vacant 
  • Owner recommends outlining rules up front for friends and family to avoid arguments 
  • Don’t discount during peak booking seasons 

 

If you own a bach as a rental property, no doubt you’ve had family and friends asking how much of a discount they can squeeze out of you. 

Experts advise weighing up your costs and the market rate per night seasonally before handing out mates’ rates. 

So, how much should you charge your friends and family? 

Head of Revenue at Bachcare Holiday Homes, Nick Peirce, recommends not taking more than 20% off the market rate for friends and family. 

The bach management agency takes a 20% commission fee after deducting a 2% credit card transaction fee on their clients’ rental prices. 

“Any owner discounting more than 20% would compromise their ability to cover costs,” Peirce said. 

Costs vary depending on whether there’s a mortgage on the holiday home and how much that mortgage is, however, other fixed costs include utility bills, property maintenance, insurances, rates, accounting fees and property management fees if you hire an agency. 

Management agencies will typically handle cleaning and linen services as well as payments. 

Hannah from Auckland owns two holiday homes in the North Island with mortgages and says they’re both cash-positive properties. 

She's rented out her bach in Ohakune for three years and recently bought a new property in Taupo six months ago. 

“My friends and family always ask me for last minute bookings, for example just one month out from the school holidays, so they hardly ever get to stay because my places are usually booked out six months in advance,” she said. 

“They don’t treat it like they would another rental, so it’s almost never available. 

“If I do have available slots, I let my sisters stay free of charge the first time and then give them 50% off going forward. 

“There are a lot of costs in this business, so I don’t expect massive returns, but I do need them to be cash positive,” she said. 

Hannah uses a property management company that specifically rents through Airbnb and Bookabach.  Her advice to others is to set rules for friends and family in advance. 

“You've got to set rules for everyone and make the rules known up front to avoid arguments or burn relationships,” she said. 

Bachcare Holiday Homes say they find the market rate by benchmarking a property against other similar properties in that location. 

“We recommend a price and share our projection of the income we expect due to the size and location of the property, according to each season. 

“Some owners don’t want to overcharge, while others want a set price that’s not market rate, ultimately it’s their decision. 

“If the owner is heavily leveraged on the mortgaged, then they need to think of their costs,” he said. 

Peak seasons are vital to rental incomes, so if your friends and family are asking for a discounted price over this period, think twice.   

“Christmas and New Year can make you as much as double the rate than other times of the year, so my advice is if friends and family want to use it, don’t do it over peak times if you want to protect your income.   

“The owner should try to retain 80% of the market rate at all times. But, if costs or the mortgage is not an issue then you could discount further at your own discretion,” he said. 

The average Airbnb host in New Zealand earned an annual income of $3,800 in 2016, according to NZ Law

However, 116,000 owners declared a loss from rental properties in the tax year of 2016/2017 through Inland Revenue

Hannah says she earns on average $8,000 to $10,000 annual profit from her Ohakune bach and chose Taupo as her newest rental location because of its consistent numbers of domestic visitors. 

Owners should remember their tax obligations - holiday home and Airbnb rental income is taxable under the Income Tax Act 2007. 

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Property