Types of property to buy: Holiday rentals
About the Series
In the fourth of our series on buying different types of property, we look at considerations for buying a holiday rental.
Many of us have dreamed of owning our own holiday home – a place to go whenever the whim takes us, and an investment that could provide short and long-term returns.
However, there are many factors to consider. We take a look at what you should think about before taking the plunge:
- Buy with your head
What is your objective for buying a holiday rental? It may be a property purchased solely as a financial investment. Or perhaps it is just a place you, your family and friends can use to get away. Sometimes it is a mixture of the two, but one reason is probably a little bit more important to you.
As with any property investment, work out if this one makes financial sense. Can buying a holiday property provide you with an investment that doubles as an economical holiday destination, or will you be purchasing a holiday house that you only use once in a while?
- Managing a holiday house
You may consider listing your property with a holiday accommodation website to enhance promotion. You may also wish to use the professional services of an estate agent to manage, advertise and let your property.
There are also ongoing budget considerations when owning a holiday home. Holiday rentals 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. You should make sure to factor these costs into your budget.
- How often will people stay in your rental?
Rental demand for holiday rentals may vary by season. For example, if your property is in a beachside location, rental demand may increase during the warmer months of the year. On the other hand, 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 rental needs to be occupied to ensure it fits within your budget, and compare this with estimated occupancy rates. Is there a high demand for short-term rental properties in the area you are looking at? Talking to local real estate agents or holiday house owners can help you to find out more.
- Holiday rental insurance
Make sure you are getting the right kind of insurance. A holiday rental may require cover that includes short-term or rental insurance. Ensure that you get the right cover for your needs.
- Market value
It is important to consider that the value of holiday rentals can be affected by booms and busts. According to RP Data, the largest corrections occur in coastal and lifestyle markets: that is, if the property market is booming, these areas are likely to be too. On the other hand, if the property market is in a downswing, it may be felt most keenly in these areas.
As with any property purchase, do your due diligence and research on the area you are thinking of buying into to find out if any new developments are in the pipeline. Our Property Value Guide can give you a free suburb profile to help you evaluate an area.
- Financing the purchase of a holiday rental
If you are buying a holiday rental, the conditions of your loan could be different to 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 rental may be lower than what is required to purchase a regular home. This could mean you need a higher deposit.
- Tax concessions
Tax concessions are available for many owners of holiday rentals. You may be able to claim expenses such as advertising for tenants, cleaning, and gardening and lawn mowing, for example. Visit the Australian Taxation Office website or talk to your accountant to find out which concessions could apply in your situation.
Considering investing in a holiday rental? Speak to one of our lending specialists today.
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. Commonwealth Bank of Australia ABN 48 123 123 124.