We all know the feeling. The sun is shining, the waves are lapping peacefully on the shore, there’s a cool ocean breeze wafting gently through your hair and the crisp sand is etched between your toes.
Sometimes you wish your holiday romance could last forever.
Technically it could!
Hundreds of thousands of Australians own their holiday getaways. With the temptation to escape the daily grind, a holiday home can be a very rewarding purchase.
But do holiday homes make a good investment?
When it comes to investing in property, it’s easy to let your emotions rule. However, before you make any snap decisions you should consider the benefits and risks associated with this kind of purchase.
- Free accommodation when you go on holidays.
- You will have a home-away-from-home with unlimited access (depending on tenancy arrangements).
- You can rent your holiday home out for the portion of the year that you don’t intend on staying there to help mitigate some of the costs. This can be particularly beneficial during peak seasons.
- Your holiday home may increase in value over time. The potential for capital growth on property investments is generally higher than that of cash and fixed interest investments depending on the property.
- You can claim a tax deduction for expenses incurred in maintaining your holiday home for the period of time it is rented out.
- Occupancy rates fluctuate. Strong demand for holiday homes is on average around 8 to 10 weeks per year – and this is dependent on location. Demand for homes in a warmer climate is more consistent (especially if it’s beachfront).
- If you rely on income from peak holiday seasons you won’t be able to use your holiday home during these times, e.g. during school holidays.
- You may need to take on a significant mortgage as holiday homes can be quite expensive.
- On top of the initial purchase price you will also need to consider the costs of maintaining the property, including management fees.
- Any rental income or capital gain that you realise upon redemption of your holiday home will be added to your assessable income and taxed at your marginal rate in that financial year.
- If there is a property market downturn, holiday areas are generally the first to suffer and the last to recover. If you have chosen an area, do thorough research on past cycles and how they have affected local prices.
- You might get bored visiting the same place over and over. On top of this, you may even feel guilty if you holiday somewhere else!
Investing in any type of property is a big decision. When considering purchasing a holiday home, you should try and think a little less with your heart and a little more with your head. Seek professional guidance before making any big decisions.