When the holiday is over, let the investment kick in

Written by realestateview.com.au in Investment on November 25, 2020

As summer holidays recede, couples across Australia are weighing up the benefits of buying the holiday let from which they have derived so much pleasure.

The current and projected low interest rate environment makes it a good time to buy any property, according to Real Estate Institute of Australia president Adrian Kelly.

“Homes in locations within a reasonable commute from major centres, the so-called tree change and sea change places, have seen increased demand during the COVID pandemic,” Mr Kelly said.

“There are signs this has resulted in changes to work practices and locational living preferences, with these locations expected to experience ongoing demand.”

Australia’s current cash rate is at an historic low of 0.10 per cent, with the average home loan interest rate of between 1.89 per cent and 3.19 per cent. Furthermore the Reserve Bank has indicated interest rates will probably remain low for years to come, so finances are in your favour.

But there are other considerations when buying a holiday home.

“It needs to be remembered that the return for holiday homes comes from both economic and leisure factors,” Mr Kelly said.

Again, the pandemic seems to be swinging in favour of potential buyers of holiday homes.

“In the past, the general economic return on holiday homes has been less than in the major capital cities, however, COVID has seen the demand for holiday locations increase and with this so will the economic return, including long-term capital growth,” Mr Kelly said.

Holiday homes that are away from the crowds, yet close to facilities, such as shops and employment, usually keep their value.

Mr Kelly says conventional wisdom when buying a holiday home is to buy “anywhere within a reasonable travelling time from a major population centre”.

“But with COVID and the accompanying flexible workplace approach, this is being extended beyond these zones.”

If the property is being let for that part of the year when the owner is not using it, any income must be declared in your income tax return. At the same time, a proportion of costs can also be deducted from your income such as rates, interest payments, as well as all costs directly related to the letting.

A holiday home should not be bought as an investment, rather, as a rent-free place in which to make cherished family memories.

But it is safe to keep an eye on the property market and interest rates to ensure your dream won’t evaporate with the passing of summer.