Is it worth buying a holiday hom versus resnting every year? This is probably the most common question to come out of summer each year. Families head off on Christmas holidays to idyllic beach towns and find themselves peeking in the windows of real estate agents. I’ve certainly been guilty of this many times… unfortunately my wife Libby is way too sensible and would never let me.

Buying a holiday house is a tricky topic because you have to decide right from the start whether you’re making the purchase as an investment or a lifestyle choice. Is it going to be a rental property or do you want to use it? Because trying to do both can be very difficult and end up being very expensive.

About a third of property purchases in holiday locations are made just after the peak holiday period. You’re definitely not alone in the dream. But there are many considerations to make before buying outside of the city.

As an investment, you’ve got to remember that renting out a holiday house is very susceptible to fluctuations throughout the year. Peak holiday season lasts about 18 weeks of the year, so the rest of the time you may struggle to find any tenants.

Don’t forget the hidden costs of owning an investment property, including council and land rates, furnishing, maintenance, advertising, and managing agents fees which can get up to as much as 40%.

Your next thought is probably ‘what about the tax benefits?’ While there is some consolation in negatively gearing the property, don’t see this is a saving grace. Especially if you are planning to use the property at times for your own holiday; the more time it is used by you, the smaller the tax deductions get. And the ATO is really cracking down on this. Of course if you wanted to use the house as well as rent it out, then you’ll obviously not be able to go during the peak holiday periods.

I don’t mean to put you off altogether, but it’s important to understand the reality of owning a holiday home. If you are serious about the idea and want to go ahead, the golden rule is always location, location, location. A beach side hut isn’t good enough, it has to be near entertainment, townships.

Property research group Australian Property Monitors provide great information about rental yields all over the country. Here are some of the top towns around for holiday returns.

SA: The top earning towns in the bush were Normanville and Carickalinga.

Victoria: Inverlock and Point Lonsdale both earn over 10% return.

NSW: Top earners are Leura, Kangaroo Valley, Fern Bar and Jindabyne.

QLD: Smithfield and Moranbah

WA: Rivervale and Kambalda west

To find data on a specific suburb nation wide head to www.investsmart.com.au

Comments  

 

0 #3 Home Loan Sydney 2011-12-20 16:52

I always enjoy visiting your blog. Very unique and informative at the same time.

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+2 #2 2011-02-28 15:20

Hi Kochie and Libby,
I'm on the Bellarine Peninsula in Victoria and it has often surprised me the number of houses that sell down this way to superannuation funds, typically a husband-wife might start a Self managed Fund, have say $400k, buy a beach home, do it up like a doll's house, then leave it sit vacant for 50 weeks of the year! The 10% or so p/a {plus?} return on capital gains is enough to justify this strategy. It's fine by me, as they say, the best neighbours are ones you never see.
-Cheers

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+1 #1 2011-02-25 15:55

UMM - Moranbah is a mining town inland Qld - not very pretty - People go there to work not have a holiday. So holiday returns zilch but you can charge mining companies gazillions.

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