For many Australians, the option of purchasing a holiday house for dual use an investment property is an attractive one, as it provides investors with a viable prospect for on-going rental returns and unique lifestyle benefits. Despite such, it is imperative that all investors – no matter how experienced – properly weigh up the pros and cons relating to this type of investment; not only can holiday houses have some great advantages, but they can also have inherent risks and drawbacks.
With this being the case, I have decided to outline five important factors that should always be considered before purchasing a holiday house for investment property purposes:
1. Ensure that you account for different expenses that come with owning a holiday house. The holiday accommodation industry is competitive and, as such, you will need to factor in costs associated with advertising and marketing the property. In addition, you will need to consider hidden costs including, but not limited to, agents fees, land and council rates, and general maintenance expenses.
2. As an investment, holiday houses are particularly susceptible to annual fluctuations; peak holiday seasons last for relatively short time-periods, which can potentially make finding regular tenants difficult. Although weekly rates for holiday rentals are generally quite high, these types of properties can sometimes lay unoccupied for weeks at a time, leaving owners to cover mortgage payments without any income support from the investment properties themselves.
3. There are a number of significant tax benefits that can potentially be leveraged via ownership of a holiday house. Ensure that you speak with a qualified accountant or tax adviser to understand the types of deductions that may apply.
4. If you do decide to purchase a holiday house, try to cater to a wide variety of potential tenants. For example, you might want to consider purchasing a one-bedroom or two-bedroom unit as these property types may be appealing to both families and couples.
In addition, you should look to identify a location that is not only idyllic in setting but also close to amenities such as shopping centres, public transport and entertainment venues.
5. Research and work with a real estate agent to list the risks involved before proceeding. While holiday houses can potentially deliver significant rewards, they can also carry large financial risks. As such, it can often pay to make a properly informed decision.