Buying your dream holiday home – but will it make a good rental property?

We’re all guilty of spending part of every holiday gazing into a real estate agent’s windows and wondering if (or when) we’ll be able to afford our own slice of paradise.

And if you take out a holiday home rental when you go away on holidays, you’ll be fully aware of how much they cost and the great returns they could potentially bring!

However, owning your own holiday home and owning an investment property in a holiday location are two very different propositions.

Buying a holiday home for yourself

If you are buying a holiday home entirely for your own use, your primary consideration will always be about how you and your family will use the property. You’ll be looking at the location to assess whether or not it will facilitate a good holiday for your family – is there enough accommodation for the whole family, does it provide the sporting options and facilities your kids will want, is it close to your relatives if that is important to you, and so on.

The right location is key to ensuring your purchase will increase in value over time. When choosing a location that will help your property increase in value, here are some points that might help:

  • The property is within a two hour drive of a capital city or airport
  • The location has lifestyle facilities such as shopping, quality cafes and restaurants
  • The location offers attractions such as vineyards, beaches, watersports, amusement parks etc.
  • The market is not already oversupplied with holiday homes that can’t be sold or rented.

Buying a holiday home as an investment

When buying a holiday home for investment purposes, your considerations and objectives will be different than if you were buying a property for your own use. That’s because the primary purpose of an investment property is to earn you money, not provide you with a second residence.

When buying any investment property, it is very important not to make an emotional decision – profit should always be your first consideration.

Several things determine whether or not a property may make a good investment:

  • Will it be easy to find tenants?
  • Will it earn enough rental returns to cover your costs?
  • Will it provide you with a capital gain over the period of time you plan to own it?
  • Can you cost-effectively improve the property to increase your capital gains?
  • What is the best structure to purchase a property to best manage tax and to protect the asset?
  • Does the property have the access and lifestyle considerations that make a good holiday home? Will these attractions develop further in the future?

When making your property investment, you also need to remember that getting a regular rental return from a holiday investment property may be more difficult than with an ordinary investment property. That’s because demand for holiday homes tends to be seasonal.

It may be easy enough to find tenants during the peak summer holiday season, but it might not be so easy to find them year round – especially for seaside purchases.

Best of both worlds?

So, where does that leave you in terms of enjoying your holiday investment home for your own use occasionally?

Trying to get the best of both worlds – a holiday home for your family that is also an investment that covers its own costs – may prove to be difficult. However it may be possible to rent out the property some of the time to help cover some of your costs.

The only problem there is that you will probably want to use the home for yourself when others are most likely to want to rent it from you.

Disclaimer: This article is not legal advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. Where a particular financial product is mentioned you should consider the Product Disclosure Statement before making any decisions in relation to the product. Whilst every care has been taken in the preparation of this information, Australian Unity Personal Financial Services Ltd does not guarantee the accuracy or completeness of the information. Australian Unity Personal Financial Services Ltd does not guarantee any particular outcome or future performance. Australian Unity Personal Financial Services Ltd is a registered tax (financial) adviser. Any views expressed are those of the author and do not represent the views of Australian Unity Personal Financial Services Ltd. If you intend to rely on any tax advice in this document you should seek advice from a tax professional. Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459, 114 Albert Road, South Melbourne, VIC 3205. This document produced in April 2016. © Copyright 2016