Pros and cons to investing in a holiday home

One question that I have come across lately is whether a holiday home or a resort apartment makes a good property investment.

Australians love to get away from the grind of day to day life and purchasing a holiday home does give you the option to escape. There certainly is something attractive about purchasing a property in a location that you love and have holidayed in, but if you are looking to purchase as an investment, you should try not let your emotions take over.

Holiday homes can take many shapes and forms from a cottage or lodge in the Hunter Valley to a resort apartment along the coast.

If purchasing a holiday home as an investment is something that you are seriously considering, then you should firstly be aware of all the pros and cons associated with it and ensure you carry out your due diligence first.

PROS

  • A second home – A holiday property can provide you with a second home and a place to go on holiday cheaply. You can also furnish it exactly as you like.
  • Frequent stays – With a holiday property you can come and go as you choose. You might want to stay over Christmas or have a long weekend, meaning you don’t have to worry about booking somewhere to stay last minute.
  • Resort lifestyle – If you purchase within a resort complex, then you will likely be able to use the facilities too and enjoy a clean and well maintained complex, as the resort is likely to want to remain attractive to guests.
  • Earn an income – There are many holiday home owners who decide the best approach is to rent out this property. The best time of year is obviously during peak season where you can charge higher rents and returns can be a lot higher compared to residential properties.
  • Direct manager – If you purchase a holiday home then you can choose whether you want to be the direct manager of the property. This can help you save money on management fees.
  • Claim tax incentives – When renting out this property, you might be able to claim tax incentives, as well as offsetting any losses in your tax return.
  • Capital growth – If bought in the right location, then you might see some capital growth potential where this property appreciates in value over time.
  • Retirement – This holiday home could turn into a place to retire which gives you the lifestyle you are looking for come retirement.

CONS

  • Seasonal – Holiday homes tend to have seasonal demand which you must definitely consider. If you are looking at renting out your home as an investment property then you will need to have a superb peak season to make up for times when there is lower demand in order to balance out the costs. It might turn out one year you might have poor demand due to the weather, and people looking to go abroad which may mean you make a substantial loss for the financial year, a loss that you must fork out the difference.
  • Pricier - Holiday homes tend to be quite expensive compared to residential properties, meaning you will have to take on a larger mortgage.
  • Damage – if renting out the property on short-term leases then the property is more likely to gain more wear and tear due to people moving in and out on a regular basis. This might mean you will have to spend money and time repairing the property to keep it in good condition so that it is still appealing.
  • Strata costs – if you have purchased a resort apartment there are also strata costs that you need to be aware of. The resort may have swimming pools, gyms and spas which both hotel guests and private apartment owners have shared access to. The more amenities available, the higher the costs. A resort is likely to want to remain appealing to its guests and this could mean having a gardener to cut the grass, repairs on pavements or new equipment in the gym. This all costs money and as you are part of the resort, it is likely that a share of these costs will be passed down to you.
  • Other costs – You might live a few hours away, so it is difficult to keep it maintained. This might mean you need to pay for someone to clean the property every time a guest vacates or use the services of managed agent fees.
  • Limitations – When leasing your holiday home, this may mean you are limited to when you can stay with off peak season being the least popular time due to low demand. You might also feel obliged to stay here as much as you can to get your money’s worth. However you might find yourself getting bored of the place over time.
  • Selling – When it comes to selling your holiday home, it might be difficult to do so as you are only targeting a limited segment of the market.
Personally I would say that if you are looking to buy a holiday home as an investment, then you should think twice. There are plenty more options within the market which have far more potential, including off the plan apartments that are likely to give you much better capital gains and are less prone to wear and tear whilst generally costing less to hold.

However, if a holiday home is the route you wish to go down, then you should take note of the above, and do your due diligence first to ensure that this is the best investment option available to suit you and try to avoid an emotional attachment.
Published on 10th of February 2015 by Marty Stanowich
Marty Stanowich
Marty Stanowich

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