Investing in a holiday house

Written by in Buying on December 20, 2016

Investing in a holiday house

Let’s face it, everyone loves a holiday! Whether it’s beachside, countryside, mountainside or in the bush – there’s something about a holiday that brings instant relaxation and rejuvenation. It’s not uncommon to return from a holiday wishing it hadn’t ended. What if there was a way that you could go on a holiday (almost) whenever you wanted? We are talking about purchasing a holiday house.

While the allure of having a holiday house for personal trips and weekends away is undeniable, a holiday house carries with it the potential for many other benefits. The benefits of purchasing a holiday house are twofold: the obvious leisure benefits and lesser known tax and depreciation benefits.

Tax benefits

Under The Australian Tax Law, owners of holiday houses are awarded a number of benefits when the home is rented out to tenants. Negative gearing is when the cost of owning a property exceed its income. This can include loan interest, bank fees, repairs, maintenance and depreciation in capital. If you are in this boat you are able to claim tax deductions mortgage interest payments during tenancy, cost of works and prices of services and replacements.

Short-stay homes – i.e. those that are fully furnished and rented out for short periods of time – offer the biggest tax benefits. An owner can claim up to 4% depreciation for 25 years instead of the 2.5% for 40 years you can claim for other investment types.

Rental yield

Leasing your house in the short term is a great way to help pay your loan and insurance. During holidays prices on rentals surge and this can be an opportunity to make a quick buck. If you can forego the holiday yourself and leave the property for someone else, that is! The average demand for holiday homes is eight to ten weeks a year, so be sure to factor this into your budget so that you can accurately balance your own lifestyle and income at the same time.

Additional expenses of a holiday house

Benefits aside, a holiday house can be an expensive investment. Firstly there are duplicate loan repayments, insurance, rates and utility bills. But then a holiday house needs to be furnished and kept clean for the variety of guests that come through. And there’s the cost of advertising your home for rent. You can list your holiday home online through websites like Airbnb and Stayz that take a percentage of the booking costs as payment, or online through real estate agents which will charge a commission. Also consider the costs of a house with no tenant. If there isn’t someone in it paying rent, you will have to cover the full cost of the mortgage repayments during that month. This can be a significant financial burden if you are not prepared for this additional expense.

Tips to make a good decision

  1. Don’t rush the purchase. You may fall in love with the idea of a holiday house in the summer. But the purchase of a holiday house is just as significant as that of a home. It is something that should take time and careful consideration, and not be part of a whim.
  2. Research the area. Beach towns are obviously most attractive in summer. Put the time in to assess the market and the growth rate of the area.
  3. Calculate costs. Don’t create a budget based on the assumption that there will always be a tenant in the house. Determine what you can afford during the down times so you don’t end up caught short financially.