What to know about investing in sectional title rentals

Sectional title property are among the most popular for rentals largely due to the security and convenient lock-up-and-go lifestyle that it offers.

That said, there are certain nuances that prospective purchasers and investors should take note of. Firstly, unlike freehold property, a sectional title property is part of a community and there are usually certain regulations which apply to conduct and use of the common property such as parking bays.

To maintain the scheme successfully, these regulations and rules are in place to govern the use of the property, general conduct by residents, maintenance, levies and so on. Levies is also particular to sectional title property and generally covers aspects such as maintenance of the common property and administrative and compliance management.

These rules may also include certain conditions pertaining to renting out of the units in the complex. This may include the requirement to advise the Body Corporate when a new tenant takes occupation. Property owners must also provide their tenants with a copy of the complex rules and ensure they are aware of the conduct rules around visitors, parking and the like.

Tenants are bound by the rules of the complex and property owners must take all steps to ensure compliance by their tenants, and any employees and guests. If there are issues with the tenant or their staff or visitors, the matter will usually be raised with the owners.

Operating a business including Airbnb from a sectional title unit

In terms of the provisions of the Sectional Titles Schemes Management Act ("STSMA"), the owner or tenant may not cause any nuisance to other resident in the scheme. There is also an onus on the Body Corporate to ensure a unit is not used in a manner as to unreasonably interfere with other persons lawfully on the premises (per MTB Attorneys).

Thus, if the tenant is simply working from home with no disturbances to neighbours, there are usually no issues. Naturally, it is generally prohibited to run any kind of business which causes noise or frequent visitors.

In terms of short-term rentals or Airbnb, this was specifically ruled permissible by the courts, provided it is not specifically prohibited by the Management or Conduct rules of the scheme. Owning an Airbnb unit can be financially rewarding, but the property owner will need to ensure that there is no impact on other residents.

If you are a novice rental investor and are looking to specifically invest for the short-term or Airbnb rental market, then it is prudent to ensure you are well aware of the risks. For example, there may be security issues as there is usually no vetting of the tenants/visitors done by online booking agencies.

Tax and permissible deductions on your rental property investment

The income earned from your rental property will be subject to tax and must be added to your income when you submit your annual tax return. This applies whether you rent out the property on a monthly residential rental basis, or whether your property is used for short-term or Airbnb rentals.

You can, however, deduct certain expenses incurred in connection with the rental property from your annual taxable income. These would include costs such as the rates, taxes and levies, bond interest, marketing and agency fees, repairs and maintenance, and homeowner's insurance (but not the insurance of household contents).

All expenses which are of a capital nature including bond repayments, the cost of improvements and insurance premiums relating to the contents of the unit are not deductible.

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