Rental Arbitrage in Sydney | What You Should Know!

Do you need to own property to cash in on Airbnb? Think again! Airbnb rental arbitrage is a clever strategy that lets you profit without owning a single square foot, especially in bustling cities like Sydney, Australia.

In this article, we’ll walk you through everything you need to know to get started and succeed. 

Defining Rental Arbitrage

The strategy of rental arbitrage involves leasing a property and renting it out on short-term rental sites such as Airbnb, VRBO, Booking.com, etc. You do not need to own the property, you just need to follow local laws. In essence, it allows you to run a successful real estate business for a much lower price and risk than traditional investment.

A high-demand area can generate significant income from short-term rentals using this model. You can generate a steady income stream by negotiating favorable lease terms with property owners and managing the rentals effectively. Providing high-quality experiences for your guests and understanding market dynamics are key to your success. 

Getting to Know Sydney

Sydney continues to captivate both local and international tourists with its dynamic and vibrant atmosphere. In the year ending March 2024, the city welcomed over 35.1 million visitors, showing a slight increase from the previous year. These visitors spent around 31.8 million nights and contributed $15.7 billion to the local economy, marking a 10.6% rise in expenditure.

The city’s charm lies in its iconic landmarks such as the Opera House, Sydney Harbour Bridge and Bondi Beach, coupled with a lively food scene. Sydney's mix of natural beauty, cultural heritage and bustling urban life makes it an attractive destination throughout the year.

Short-Term Rental Demand in Sydney

Sydney's short-term rental market offers lucrative opportunities for property investors and rental arbitrage entrepreneurs. The city's high demand for short-term rentals is driven by a steady influx of tourists, bolstered by the favorable economic conditions, including low interest rates.

As of July 2024, AirDNA reports about 9,188 active rentals in Sydney, with an average daily rate of $257, a 62% occupancy rate and an annual revenue of $19.4K. The property market in Sydney is strong and growing, making it a prime location for rental arbitrage. Plus, the Sydney property market has been one of the strongest and most consistent performers experiencing 25+% house price growth.

Neighborhood insights

Identifying the best rental arbitrage areas in Sydney can be easier when you understand its diverse neighborhoods. 

Central Business District (CBD) : Ideal for business travelers and tourists who want to be close to the city's main attractions.

Bondi Beach: A popular spot for beach lovers and surfers, offering a laid-back vibe with high rental demand.

Newtown: Known for its eclectic mix of shops, cafes and cultural attractions, appealing to younger travelers and artists.

Manly: Offers a coastal lifestyle with easy ferry access to the CBD, attracting both local and international visitors.

What Are the Requirements For Short-Term Rentals in Sydney?

To operate a short-term rental in Sydney in 2024, you must adhere to several requirements set by the NSW Government:

Statewide planning framework

All STRA properties must be registered within a statewide planning framework. This includes adding your property to the STRA Register.

Compulsory code of conduct

This applies to all industry participants including hosts, booking platforms, guests, letting agents and facilitators, ensuring everyone adheres to the same standards.

Strata by-laws

These may restrict certain types of short-term rentals within strata-managed properties.

STRA planning framework and registration

Effective from November 2021 and updated for 2024, the NSW Government introduced a statewide planning policy for STRA, which includes the following:

Registration

Hosts must register their properties and comply with the new STRA Fire Safety Standards. You can register your property through the NSW Government’s Planning Portal.

Fees

The registration fee is $65 for the first 12 months and $25 for annual renewal.

Day limit

Hosted and unhosted STRA listings can operate year-round, but unhosted listings in Greater Sydney and some regional areas are limited to 180 days per year. Bookings exceeding 21 consecutive days are exempt from this day limit.

What Kind of Short-Term Dwellings Are Not Permitted?

Under the updated 2024 law, the following types of dwellings are not considered STRA:

• Boarding houses

• Seniors’ housing

• Rural workers’ dwellings

• Group homes

• Hostels

• Refuge or crisis accommodation

• Build-to-rent housing

• Co-living housing

• Moveable dwellings such as caravans, tents or glamping accommodation

How to Register: A Step-by-Step Guide

The STRA Register, launched on July 1, 2024, mandates registration for all STRA properties by January 1, 2025. Non-compliance may result in penalties. This initiative aims to enhance transparency and accountability.

1. Add your property to the STRA Register

2. Visit the NSW Government’s Planning Portal.

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

4. Pay the registration fee and submit your application.

5. Note the registration number for your Airbnb listing.

6. Add your STRA registration number to your Airbnb listing.

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

2. Click on your listing, then navigate to Policies and Rules > Laws and Regulations > Regulations.

3. Enter the number into the Airbnb Registration Number field and click Save.

4. Change your listing status to "Listed"

5. Return to your listing page.

6. Go to Listing Details > Listing Basics > Listing Status > Listed.

Side Note: Registrations must be renewed annually through the NSW Government Planning Portal. Failure to renew may result in fines, penalties or removal of your listing. If your registration is denied, the NSW Government will provide support and communicate the outcome.

Exclusion register

A host or guest may be placed on the exclusion register for non-compliance with the Code of Conduct. Hosts must ensure that guests listed on the Exclusion Register cannot complete a booking.

Short-Term Rental Tax In Sydney 

Handling taxes for your short-term rental might seem overwhelming, but it’s quite manageable once you break it down. Here’s what you need to know, based on guidelines from the Australian Taxation Office (ATO).

Goods and services tax (GST)

GST is a 10% consumption tax on goods and services. The specifics can vary, so consult a tax advisor or visit the Australian Taxation Office portal for in depth details.

Income tax and reporting 

All income from short-term rental accommodations (STRA) must be reported to the Australian Taxation Office (ATO). This includes payments from platforms like Airbnb and VRBO. A detailed record of all rental income and expenses is necessary to complying with tax laws and maximizing deductions for hosts.

Claimable expenses

You can claim deductions for several expenses related to your rental property. Here are some common ones:

• Mortgage interest: The interest part of your mortgage repayments can be claimed.

• Utilities: Costs like water, electricity and gas are deductible.

• Insurance: Both property insurance and specific landlord insurance.

• Maintenance and repairs: Expenses to keep the property in good condition.

• Property management fees: Fees paid to property managers or agents.

• Cleaning costs: Expenses for cleaning the property between guests.

• Depreciation: The decline in value of furniture, fittings and equipment used for the rental can be claimed.

Whole property, part-year rentals

If you rent out your entire property for only part of the year, you can claim expenses for the period it was rented. For example, if you rented it out for 200 days, you can claim a proportionate amount of expenses based on those 200 days. This includes a portion of mortgage interest, utilities and other related costs.

Part of home, whole year rentals

When only a part of your home is rented out for the entire year, such as a room or a separate section, you can claim expenses for the portion of the home used for rental purposes. This is calculated based on the floor area of the rented part relative to the total area of your home. You can also claim a portion of shared costs like utilities and internet.

Part of home, part-year rentals

This situation involves a bit more calculation. You need to determine the proportion of the home rented out and the duration it was rented. For example, if you rent a room that occupies 20% of your home’s floor space for 100 days, you can claim expenses based on that proportion and time.

Example calculation

Rental area: 20% of your home.

Rental duration: 100 days (approximately 27% of the year).

Claimable expenses: Calculate 20% of relevant expenses (like utilities) for 27% of the year.

Important tips to remember

• Keep detailed records of all income and expenses.

• Save all receipts and invoices for any expenses you plan to claim.

• Ensure your claims are proportional to the period and area rented out.

• Consider consulting a tax advisor for personalized advice and to ensure you comply with ATO guidelines.

Limit for Short-Term Vacation Rentals

Regions like Greater Sydney and Byron Shire have caps on non-hosted STRA properties, typically limiting rentals to 180 days annually. Byron Shire recently reduced this to 60 days per year effective September 23, 2024.

Incentives for Long-Term Rentals

Western Australia offers a $5,000 incentive for property owners to convert vacant properties into long-term rentals. This initiative aims to alleviate the housing shortage.

Getting Started with Rental Arbitrage in Sydney with Hostaway

Ready to jump into Airbnb rental arbitrage in Sydney? Think big and beyond Airbnb—platforms such as Vrbo and Booking.com  are essential too. This strategy, known as multi-channel distribution, boosts your visibility and keeps your booking rates high.

Using a tool like Hostaway simplifies everything. Manage all your listings from one place, sync calendars and streamline communication. This means fewer vacant nights and more consistent bookings.

Once you're regularly booking 90% of your nights, it's time to increase those nightly rates. Also, consider creating a direct booking website to avoid listing platform fees and build a loyal customer base for steady income.

Get started with Hostaway today and watch your short-term rental empire grow!