So, you loved the holiday, the location, watching the kids run free, uninhibited of mobile devices, the relaxed atmosphere was amazing and now you’re thinking about buying a holiday home.
‘What if we buy one’. ‘We can have this all year round, worry free’. Does this sound like you? If you answered yes, I would caution you to tread carefully.
When buying a holiday home your reality could become far different if this isn’t handled properly. It’s easy to fall in love with the concept and neglect to pay attention to the investment fundamentals of buying a holiday home.
Let’s take a look at some considerations before you jump head first into your home away from home.
Reasons for purchasing a holiday home?
Is it to use solely for you and your family or would you consider leasing it out for part of the year? Would you only rent to friends and family? Each decision here changes the tax dynamic. Ensure you research and discuss with your accountant which direction benefits you tax wise, not just for now, but looking to the future.
Location and type of investment
Will it be close to amenities, views, restaurants, cafes and the like? What are the peak tourist times for that particular area and what are the occupancy rates? Think of rental returns, maintenance, real estate fees and if rented a portion of the time and not solely for your own personal use, do you want to spend your holiday time keeping up with maintenance and repairs and missing out on the reason you purchased it in the first place. Maybe the option for you might just be a permanent tenant.
Holiday or Rental Income
Then again, no beach side holiday for you or peak time rental income. Keep in mind though that agent fees will be higher in peak times also. Take a look at the type of investment, such as small apartment with only tea and coffee making facilities, dual occupancy, where your holiday home is at the front and the rental accommodation at the rear. A self contained bungalow may be the way to go. As retirement looms you may wish for that sea change and your investment could become your new home. Again, research all possibilities and make sure it suits you and your budget.
Researching for the right real estate agent is critical.
This could mean the difference between your holiday home occupied or vacant with no extra income to support the loan. Holiday homes in peak times can yield high returns, consider however, that the flip side is they will be vacant longer than normal investment properties, agent fees will be higher, you’ll have two lots of rates, gas, electricity, maintenance costs and perhaps land tax. Another consideration is you may need to provide extra’s such as DVD players, washing machine, air conditioner, BBQ and the list goes on. The average annual maintenance bill for holiday homes is purported to be 4% to 5% of the annual income.
Is a holiday home the right investment option for you?
If you want to take the family on a holiday in peak season to fit in with your family’s school and work commitments, be aware that each week you’re there, is 1 week less rental income earned. If you’re a seasoned investor looking for something different, then holiday accommodation is worth looking at. If, however this is a first time investment where you’re looking for capital growth and a stable income, a holiday home probably isn’t for you.
Take the time to research and discuss your options with your family and accountant. Whilst the idea of living the tropical dream sounds romantic and care free, the reality can be quite opposite.
Previously under 'Business Advice' we published a post on "Flowcharts Budget and Staff".
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