Are you tossing up buying a holiday home and if it could possibly make a good investment? Are you thinking with your head for the purchase or with your heart?
According to data from the Australian Bureau of Statistics, during the 2017-18 financial year period, one in five (20%) of Australian households owned a residential property other than their usual residence.
The problem at times with investing in a holiday home is that while people may fall in love with the idea of the lifestyle, they might not think it through. For example, they might make incorrect assumptions about the ‘free’ holidays they could be able to take or the income they may be able to generate.
There are a few things to consider before looking into purchasing a holiday home, and it is important to thoroughly consider the pros and cons to help avoid making an impulse buy. Purchasing a holiday home can be great, but only if it fits your financial situation and long-term goals.
To help you get started, we have listed some of the main pros and cons of holiday homes.
Here’s a breakdown of all the possible advantages of buying a holiday home.
First off, one of the best pros of buying a holiday home is having a rent-free holiday pad for yourself and your family/friends. There is no time limit on how long you need to stay there, and you can go there for a spontaneous weekend holiday, or for a week or even a month! Anything goes when you own it for yourself. This also means you don’t need to pay those pesky holiday rental loading fees during school holidays as well!
Another benefit of buying a holiday home is the potential profit you might make if you decide to rent it out to a tenant whilst you are not there. The rental income could hopefully also offset the things you do need to pay like maintenance costs, mortgage, insurance and council costs. Your holiday home could also possibly appreciate in value over the years, increasing the overall net worth of your investment.
It could possibly be an ideal location to make your permanent residence after you retire.
You can potentially set up your holiday home and leave it exactly the way you want it. You wouldn’t need to pack all the extra toys or potential appliances since you can leave them there!
Property can be great when it comes to tax benefits. There are many tax deductions you could claim on your holiday home. For rental properties, tax-deductible expenses could include:
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Here’s a breakdown of all the possible disadvantages of buying a holiday home.
One of the most important things to consider is the holding costs of your holiday home. If you can’t find a tenant, then you will be paying the mortgage, insurance, maintenance fees and more out of your own bank account instead of offsetting with the rental income.
You may also need to consider rates, management and cleaning fees, cost of improvements, the cost of providing linen and towels (if renting) and the cost of keeping the garden maintained.
It could also be difficult to find a tenant outside the holiday period, probably the period you want to visit your holiday home – so you will have to figure out the balance between tenant use and personal use.
The issue with your holiday home is that you won’t be there that often, which means you will only check on it a few times a year. Unless you have a cleaner or security system in place, any damages or vandalism may go unnoticed till months later, which can sometimes cause further complications.
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The one that sometimes gets overlooked, is the fact that you might get bored of going to the same place year in year out and might not even appeal to you to retire there down the track. You might feel constrained with using your holiday home and force yourself to visit when you really don’t want to.
Another issue that might arise is that your property may not appreciate in value. If you haven’t purchased your holiday home in a prime location, the reality is that the area might not be valued by the property market and furthermore tenants. A prime location could mean beach views, restaurants, cafes, shopping centres and tourist hotspots nearby.
One realistic negative aspect is renting out your holiday home to a tenant that has no respect for your home. Not only can these tenants impact your cash flow if they don’t pay their rent on time (or at all), but the stress of these tenants can be intense and emotional. If they cause any damages or you need to evict them, the out-of-pocket costs could all add up, including paying for any repairs or legal action to evict them.
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Words by Ece Demir
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