We’ve all done it, holidayed in an idyllic location and been swept up in the daydream of claiming our very own holiday home to return to on a whim. While buying a holiday home can be a very emotional decision, it’s important to remember it’s not all heavenly holiday bliss. There are plenty of practical aspects to take into consideration – extra bills, interest rates on borrowing, property maintenance and potential return on investment. These factors are particularly crucial if you’re hoping to achieve the best of both worlds – a holiday home that doubles as an income-producing investment. So, before you get caught up in the daydream and wind up with buyer’s remorse, leave the emotions at the door and consider these factors:

Don’t bank on capital gains

While regional property prices have been soaring lately, it’s a trend that has been attributed largely to COVID-related factors, such as flexible working arrangements and a greater focus on lifestyle. Traditionally, metro markets see more consistent long-term gains, so relying on holiday home gains should be viewed as a side bonus rather than a primary aim.

Rental return comes at a cost

Deciding to rent out your holiday home can be a smart decision to help cover costs but does come with several compromises. Here’s what you need to consider:

• Sacrificing your holiday for income – the periods with the highest demand like school holidays, the Christmas and New Year period, and public holidays will likely be when you’re wanting to use it yourself. You can take the approach of ‘booking out’ your own family holidays first and leaving the rest for rentals, but you’re unlikely to make a solid rental return this way.

• Fixtures and furnishing – while you may be dreaming of a Hamptons-style interior for your beach-side abode, it’s important to consider wear and tear that might just make your eyes water. Sadly, guests won’t always treat accommodation as their own, and even if they do, short-term stays inevitably lead to greater wear and tear than your casual family stays would. There’s a fine line between marketing your rental in an appealing way to optimise demand (it’s not somewhere to send your old worn-out couch and 80s bedspreads to retire) and choosing hard wearing fixtures and furnishings that will stand up to the task. Having a lockable cupboard to store anything precious in is a great idea, that way you can quickly stow it away between rentals and your own stays.

• Making sure it’s fully equipped – you’ll need to kit out your property with everything from cutlery to kettles and blankets to Wi-Fi to ensure visitors have a comfortable stay. We recommend gifting a free weekend to a friend or family member prior to renting it out, so they can give it a trial run and let you know if anything’s missing.

• Property management – holiday rentals need to be kept looking pristine, so involving a property manager to coordinate things like cleaning between visits and regular maintenance such as lawns and gardens will save a lot of headaches. They’ll also take care of managing enquiries, vetting potential short stay renters, collecting bonds where relevant, and dealing with any issues that arise during a stay. Property managers are well versed in seamlessly lining up check outs, cleans, and check ins to ensure you’re getting the most out of your rental over busy periods.

From daydream to mundane?

Buying a holiday home will undoubtedly leave you with less cash to splash on glamourous overseas holidays (COVID permitting) or exploring local treasures. Are you ok with holidaying in the same place year after year? For some, the thought of embedding yourself in a local community, becoming barefoot regulars at the local fish and chip shop and seeing your kids grow up in a special place is indeed, living the dream.

Location is key

The most popular holiday rental locations are not going to be the cheapest but will also command the most consistent, and highest per night rental income. If you’re relying on year-round rental income, avoid seasonal holiday spots that become ghost towns off peak. Before jumping the gun and snapping up a property, make sure you spend more than one idyllic weekend in the area to truly get a feel for it. Take note of things like local amenities and attractions that will draw more people to the area – for example are there popular wedding venues close by as well as a beautiful beach?

Understanding how to invest

Investing in a holiday rental is different to buying a family home. Not only can it be risky to have all your money tied up in the property basket, but there are also pros and cons from a tax perspective to consider. Things like claiming expenses, income tax and capital gains tax implications (if you decide to sell) all need to be carefully thought through. It pays to be well versed in the financial nitty gritty, and ATO has a useful rundown of the main holiday home tax requirements.

Once you’ve carefully considered the financial cost alongside your motivations, it should become clear whether a holiday rental is right for you.

DISCLAIMER

The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions.