16 October 2019

Everything you need to consider when buying a holiday house

Pat Carbone
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Like many Australians, you’ve probably thought about buying a holiday home at least once while reclining on a beach with a cold drink in hand. There are many tempting features to owning a holiday house, not least of which is being able to take rent free holidays with family and friends whenever you want.

Since the idea sounds so amazing, it’s easy to buy a holiday home with your heart not your head. To help you make smart decisions, we’ve weighed up the pros and cons and looked at the practical side of buying a holiday house.

FINANCE

In most cases your lender will require that you have a 20% deposit to buy a holiday home. If you don’t have the cash handy you could use equity in your main home – just be sure you can afford to meet repayments on both mortgages.

Always seek advice from your mortgage broker or lender so that you know exactly how much you can afford. You should also keep in mind that if buying a holiday house will stretch your finances, it’s probably a bad idea.

EARNING INCOME

To cover all the extra expenses your holiday house incurs, it’s often a good idea to earn income by renting it out. Listing it on Airbnb is a good option, with around 180,000 listings in Australia and the average host earning over $4,000 a year. There are also managed services through agents and companies like Stayz, but make sure you do your homework before committing to anyone or anything.

Doing this comes with its own set of challenges. Demand for your property may be highest around summer when you want to use it, and during winter you may experience long periods without any bookings – particularly true if your holiday home is in the southern states.

LOCATION

If you’re planning on renting your holiday home out it’s essential that you pick a place in a good location. Keep in mind that the greatest demand for holiday homes is within two hours of major cities and other vacation hotspots like the Gold Coast.

You should also consider the distance from the property to major tourist attractions like the beach, theme parks or shopping strips. Having a beautiful view will also help ensure your property rents well (and looks the business in the staging shots for marketing campaigns).

PROPERTY TYPE

As nice large home on the beach may be, buying a standalone house usually means more maintenance and repair costs and a lower rental yield. Consider a unit or apartment instead as they may have a higher cash yield and be cheaper to maintain.

EXTRA EXPENSES

Owning a holiday home isn’t cheap. You’ll have to pay for maintenance, repairs, council rates and possibly even body corporate fees. If you rent the place out Airbnb will take a cut. You may also have to pay a cleaner and an agent to manage the property and welcome guests. Even just washing the sheets takes time and costs money that you need to factor in before making a purchasing decision.

Before you buy make sure you know all the costs associated with owning the property and that you can afford to meet them.

TAX IMPLICATIONS

If you rent your property out, you can claim deductions to minimise your tax liability. Keep in mind that you can only claim expenses for the time when the holiday home was rented or genuinely available for rent – not when you were using it personally, or letting family or friends use it for free.

Expenses you can claim include:

  • Mortgage interest.
  • Commission from your letting agent or Airbnb management company.
  • Insurance.
  • Council rates.
  • Maintenance.
  • Repairs.
  • Depreciation of assets.

Travel expenses for when you visit the property as long as the travel was for the purposes of maintaining, inspecting or managing the property.

Since a holiday home is not your primary place of residence you may also have to pay capital gains tax if you ever sell. Speak to a specialist property accountant before you buy to get an accurate idea of what the tax implications of your specific purchase may be.

A PLACE TO RETIRE

If you’re planning on retiring in the foreseeable future buying a holiday home and slowly paying it off in the meantime can be a great idea.

Provided you do your sums and pick the right property, you could have a holiday home mortgage-free for you and your family to enjoy when it’s time to kick your feet up and enjoy retirement.

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