The B and B Alternative

© Property Professor articles —
Reproduced with permission.

The B&B alternative: A couple tells Money Magazine their recovery plans.

  • NAME: Christian & Elizabeth Antoniak
  • STATUS: Married, three sons – 12, 14 & 16
  • QUESTION: Do I take a pension from my defined benefit super fund or reinvest the lump sum in another fund? Is a short-term rental cabin on our land a viable investment?
  • SOLUTION: Take the pension from the Military Super scheme. Weigh up the B&B cabin carefully. Take out more insurance, particularly for Elizabeth.

Peter Koulizos comments:
Based on some risky ventures in the past, the option of drawing down $100,000 to build a B&B on their own land is a good one. Christian and Elizabeth will be risking a relatively small amount of money. In the worst case it can become a teenager’s retreat or friends and relatives can use it when they come to visit.

However, there are a few things to consider. They will be able to claim running expenses such as depreciation, interest, operating expenses, ect on tax, but also be liable for capital gains tax (GST) when they sell the property. Even though it is the principal place of residence, as they are deriving an income from a portion of the property, a portion of capital gain will be taxable.

Separating the two dwellings by subdividing the land may add extra value as in real estate the “sum of the two parts is often greater than the whole”. Sub diving may also eliminate CGT liability on their own residence. There should be a contingency plan in place as it is not just a case of “build it and they will come”. Returns from B&B’s can by very volatile as they are heavily dependent on holidays and discretionary spending. Returns can be greater than 10%, but they can also be negative!

Previous investments have been “hands off” where someone else was looking after it. But running a small business, especially a B&B, is very much a “hands on” venture. Elizabeth may be great with decoration and food but is there the skill set for budgeting, monitoring cash flows, management, marketing, customer service and adhering to regulations?

Before embarking on this venture, they should speak to their accountant and contact the Bed & Breakfast and Farmstay Association of NSW & ACT. This association assists people seeking to establish hosted accommodation businesses.

• Written by Peter Koulizos, university lecturer, author and buyers advocate. Peter will be presenting “The Essentials of Property Investment Seminar” on Tuesday 21st August, 6.30pm at The Vibe Hotel Sydney Central.

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