Investing in a holiday home sounds like a dream, but it’s one that suits some investors more than others.
Imagine being able to enjoy lazy coastal getaways, relaxing by the water while the rent cheques roll in.
This is how most people see a holiday home investment, and while it can be a savvy, money-making strategy, it’s important to do your research to ensure it’s the right investment choice for you.
• More holidays: Many people think a holiday investment will let them enjoy numerous free holidays year-round; in fact, the opposite is often the case. Beach homes attract the highest rental volumes during warmer weather, so your beach house will probably be occupied on all the ‘good’ weekends and holidays.
• Plunder or blunder: Your investment is likely to be seasonal. Therefore, you’ll need to manage your mortgage repayments and other property costs without the assistance of holiday rental income during the down times.
• Tax benefits: The upside is that if you can’t stay in your holiday home because it is occupied, your nearby accommodation costs can be reimbursed at tax time, provided you rented for the purpose of carrying out capital repairs, inspections or maintenance in relation to your holiday property.
• Rates, taxes and fees: Owning a holiday home means being liable for land tax, as well as additional council rates, utility rates and other related charges. You’ll need to reconcile your estimated monthly expenditure with your expected rental return.
• Think outside the square: Holiday homes come in many forms, including resort properties, mountain homes and properties by the beachside.
• Profit: The main profit comes from appreciation in the property’s value, not the rental yield, as that is seasonal. Provided you’re looking at a long-term investment, a holiday home may be what you’re after.
• Maintenance: Holiday homes experience a high turnover of occupants during busy seasons, which means your maintenance costs are generally higher than they would be for, say, a long-term rental property. That said, capital improvement and maintenance costs are generally tax deductible.