Many of us have dreamed of owning our own holiday home – not just a place to escape to when we need a break, but also as a potential investment strategy that could provide short- and long-term rental income when we’re not there ourselves.

However, there are many factors to consider. Here are just some of the things you should think about before deciding.

Buy with your head

It’s important to understand what you want to achieve when buying a holiday house. Are you looking to buy purely as a financial investment? Or perhaps you’d like a place you, your family and friends can use to get away? It might even be a mixture of the two, but one reason is probably a little more important to you.

As with any property investment, you should be clear about understanding why you want to own a holiday house, what you can afford and any upfront and ongoing costs.

Think about the ongoing costs

You may consider listing your property with a holiday accommodation website to promote it to a wider audience of potential short-term tenants. Alternatively, you may consider using a professional real estate agent to manage, advertise and let your property.

As well as these, there are other budget considerations to owning a holiday house. Holiday houses require regular cleaning (as tenants come and go) and frequent upkeep, ranging from small jobs such as changing light bulbs to bigger tasks such as repairing broken fixtures and fittings or painting and plastering. It’s important you factor these costs into your investment strategy early, so you know what to expect.

How often will people stay in your holiday house?

Rental demand for holiday houses can vary by season. For example, if your property is in a beachside location, rental demand may increase during the warmer months of the year. Conversely, if your holiday house is near a ski field, peak demand for your property may occur in the cooler seasons.

Work out how often your holiday house needs to be occupied to ensure it fits within your budget, and compare this with estimated occupancy rates. Talk to local real estate agents or other holiday house owners to understand if there a high demand for short-term rental properties in the area you’re looking at.

Keep in mind, if you plan to use your holiday house yourself (especially during peak demand periods), you’ll need to consider how this may impact your budget and investment strategy.

Don’t forget insurance

A holiday house may require cover that includes short-term or rental insurance. If you plan to rent it out for 90 days or longer, you might want to consider landlord insurance. For shorter stays, consider a holiday let insurer. Either way, make sure you get the right cover for your needs.

Different loans for different properties

The conditions of your loan for a holiday house can differ from those of a regular home loan. The most common difference is the loan to value ratio (LVR), or the percentage the bank is willing to lend you against the value of the property. The LVR for a loan to purchase a holiday house may be lower than what is required to purchase a regular home, meaning you may need a bigger deposit.

Tax concessions

You can generally claim a number of property-related costs as a tax deduction, provided your holiday house is rented or available for rent. To find out more about what you can and can't claim on a rental property, speak to an accountant or tax specialist, or visit the Australian Taxation Office (ATO) website.

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Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances. You should also consider seeking professional financial, legal and/or tax advice before making any decision based on this information.

Taxation considerations are general and based on present taxation laws and may be subject to change. Commonwealth Bank is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.