Holiday homes are becoming a smart investment option for many. This is possible because many favoured holiday locations have developed viable rental markets with local tenants leasing properties for extended periods, often beyond the summer holiday, particular in WA’s south.
So should you do it? There are a few things to consider, and as with any major financial decision, ensure sure you are purchasing with your head, not just your heart
When purchasing a property with long term goals, location is often the number one priority. Think smart about the pros and cons of a location, and whether your investment would suffer during off-peak times where low occupancy rates are common. For example, if you are thinking of purchasing a holiday home in the beachside town Dunsborough, it might be wise to invest in a property with beach views, close to the best restaurants, cafes, shopping centres and tourist attractions.
When it comes to holiday homes, it’s no secret that rent returns can widely fluctuate. In come coastal locations, the average period of strong demand for holiday rentals is 8 to 10 weeks a year over the summer with demand dipping throughout the winter months.
With this in mind, it could be wiser to invest in prime properties in locations which remain warm throughout the whole year. In this case, proximity to the beach and a sea view make a big difference when it comes to success with holiday letting. Alternatively, you could consider a permanent tenant rather than holiday letting to ensure your income is consistent throughout the year.
Property size and amenities
It is common for many holiday homes to have small rooms and little amenities as they are built for short term rentals. While these homes or apartments might yield a higher rental return on the original purchase price, it is always wise to invest in something a little bigger. Look at properties that are self-contained, offer big bedrooms and feature a separate kitchen, laundry and bathrooms. Whilst these can be more expensive at the time of purchase, they might end up giving you better capital growth in the long run, and could even be a property you’d consider living in if your lifestyle ever changed.
Seek management from a professional
An experienced and professional management team could mean the difference between an empty and occupied holiday rental and this is particularly important during off-peak seasons. It is always important to ensure you have the right management for your property. Your property manager needs to have an extensive understanding of the competitive holiday accommodation market and therefore, it pays to invest in the right kind of management.
When it comes to buying a holiday home, it is likely you’ll find mixed reviews about whether the investment has been worth it. While there are tax benefits from a holiday rentals, the cost of purchasing and maintaining the property, associated landlord expenses and the pain of dealing with holiday tenants and agents is known to outweigh the return on investment.
When it comes to tax implications, you must declare the income in your tax return from your holiday home. If you use your property for your own purposes for part of the year and then operate it as an investment property for the rest of the time, you will need to convince the ATO that the property is a genuine investment.
While you should be able to claim deductions for the times that you have rented out the holiday home, these must be proportioned according to the time it was rented out and the time used for your own personal use. Unless the holiday home is your main residence, it is likely you will have to pay capital gains tax too when you sell the property or transfer it into someone else’s name.