Holiday House or Investment?

How many of us have gone on a holiday and then dreamt of buying a holiday house?

But before you take the plunge there are many factors to take into account, so keep a level head and consider your options carefully.

A holiday house on the coast seems to be a growing Australian dream as we try to get away from the stresses of working in the city, as well as prepare for future retirement.

The purchase of a holiday house, however, can often be a more demanding property investment. Here is some information to help you in making an informative investment choice.

Location

Location is always a critical factor in purchasing property, and holiday homes are no different.

• Prices have soared in recent years in areas on the coast within a couple hours of the capital cities, so look a little further and choose an area that has not yet peaked and still possesses growth potential.

• Ensure the area is attractive to holiday goers with restaurants, facilities and attractions nearby. There is no point in buying a place by the beach if it’s not within close proximity to those luxuries we all enjoy on holidays.

• Don’t go for areas that have been over developed and are full of brand new apartment buildings as often they will be overpriced and it will lack uniqueness. Also check with the local council if there are plans for major developments in the near future.

• Try to choose an area that is attractive all year round.

Rental Income

As the property will be rented out on a short term basis there will be times when the place will be unoccupied.

While you are searching for a particular area, make sure you find out from the local agents what the average occupation percentages are. This will help you to determine what the rental income per night/week needs to be, and whether this is within the typical rental prices of the area.

Rental Expenses

The advantage of a holiday house is you get to enjoy it for a portion of the year and then claim expenses for the remainder of the year as tax deductions.

As prescribed by the ATO, you can claim expenses such as advertising for tenants, bank charges, body corporate fees, borrowing expenses, council rates, depreciation of items such as furniture, gardening, insurance, land tax, pest control, property agent fees, repairs and maintenance, stationery, telephone, water charges and even travel undertaken to inspect the property.

"You get to enjoy it for a portion of the year, and claim expenses for the rest of the year." You can also deduct some expenses from the selling price, which reduces your capital gains tax. These expenses include interest, rates and trips to the property to carry out maintenance.

It should be remembered, though, that annual running costs for a holiday house can be much higher than for other property investments.

In order to attract good short term tenants you need to keep the house and its contents in good condition, as the property needs to be fully furnished.

This means replacing furniture and white goods regularly, painting internal areas, as well as the initial significant investment required on fully furnishing the house.

Therefore, in order to gain significant returns, this should be a 10 year plus investment plan. And don’t forget that when you do manage to use the place yourself for holidaying, there will probably always be jobs to do on the place - so this is by no means a passive investment.

Conclusion

Purchasing a holiday house can be a tremendous growth investment. However it will require hard work, and a long term outlook.

It can be a very rewarding and enjoyable investment if approached with consideration and researched comprehensively at the outset.