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What you need to consider before investing in a holiday home

If you’ve ever pictured yourself escaping for a spur of the moment weekend to the beach or curling up in front of the fireplace at your cosy country retreat, you may have considered buying a holiday home. And with the promise of earning rental income when you’re not using it, buying a holiday home might seem like a no-brainer.

But before you get carried away with dreams of beach holidays and passive income, there are some important factors you’ll need to consider when assessing whether a holiday house is a smart investment option.

1. Location matters

Location, location, location. There’s a reason real estate agents insist on saying it three times – it matters, especially when it comes to holiday homes.

Take the time to research a holiday home’s location and consider what will influence its financial growth. Some areas are more popular than others and command a higher purchase price. But equally, you might be able to charge higher rental fees, especially during peak times like school holidays.

Properties in locations that are less desirable year-round may be cheaper to purchase. And while this means you will have to offer cheaper rent, remember that things change – if the location becomes more popular, you may be able to charge more.

2. Time your purchase

Have you ever been to a special place for a holiday and thought you’d like to buy locally? The same thought crosses many holidaymakers’ minds, especially during peak season, when local real estate agents can do a booming trade, selling holiday properties at top price. It may pay to wait until the offseason when prices could cool down significantly.

Another issue to be aware of when it comes to timing is the amount of time you’re allowed to rent a holiday house out for.1legalvision.com.au Depending on your state, the local council can set a maximum number of days on short-term stays or can prohibit short-term holiday letting entirely – so it’s worth checking with the local council in the area you’re looking to buy.

3. Factor in your taxes

Like any other property you rent out, a holiday home needs to have rental income declared. You may be able to claim for expenses linked to earning any rental income, however these only apply during the period it’s rented out. And if it comes time to sell your holiday home, there may be capital gains tax to consider.2yourinvestmentpropertymag.com.au

It’s wise to get advice from a qualified accountant for specific advice on tax deductions or implications related to your holiday home.

4. Listing your property

In the digital age, getting tenants to come to your holiday home is far more straightforward than it used to be. Simply choose a service like Airbnb or Stayz, upload high-quality photographs and fill out the profile with a welcoming write-up. Most of these digital services charge a service fee with the booking, so it’s important to factor this in, along with the need to clean the property between guests.

Alternatively, you can opt for a more personalised approach by using a local real estate agent to manage the property for you. They often have good knowledge of the local market and can help you find ways to maximise the time it’s rented out.

Is a holiday home for you?

As much as you might fall in love with a holiday home, it’s important to invest with your head, not your heart. Before you decide whether it’s right for you, there are a few things to consider including location, timing, tax, and how the property will be managed. These considerations will help you make the best choice in the long term and create the conditions for your investment success.


Disclaimer:

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The information contained in this article is intended to be of a general nature only. Terri Scheer does not accept any legal responsibility for any loss incurred as a result of reliance upon it. This article has been prepared without taking into account your particular objectives, financial situation or needs, so you should consider whether it is appropriate for you before acting on it. The Target Market Determination is also available.

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