Is owning a holiday home a sound property investment?

With overseas travel off the cards for the foreseeable future and borders still closed, many West Australians have been taking advantage of the many stunning and varied holiday destinations we have at our disposal right here in our own (very large) backyard. After all, Western Australia offers something for everyone, from the vineyards and the outback to the rivers and our picturesque coastline. This renewed interest in regional travel has prompted an increase in enquiries about real estate in WA holiday destinations. So is it considered a sound investment to purchase a holiday home? To answer that question, the key is to determine whether you want to utilise the property as a holiday home, as an investment, or a combination of both.

If you have fallen in love with a holiday destination in WA and would like to buy a property there, start by considering what you would use the property for before you take the plunge. Ideally you would keep the holiday available for times when you want to use it and rent it out to other holiday makers the rest of the time. This would give you the best of both worlds – a regular income to help pay off the mortgage(although this can be hit and miss – see the link to pros and cons below) and time to enjoy the property and location yourself without having to pay for holiday accommodation.

Another option would be to consider renting your holiday home out as short term rental accommodation, especially while so many areas across WA are experiencing rental shortages. Restricting the lease to short-term accommodation (say six months in the off season) means you’ll potentially have your home available for when you want to use it, while also having money coming in during the low holiday season and having it available for higher returns during peak season.

So you’ve made the decision to buy. What should you look for?

As is the case when buying any investment property, ensure your head rules your heart. In other words, adopt a business-like approach and avoid making emotional decisions, especially if you are relying on the property for income. Carefully research property prices in the area you’re interested in and be realistic about your chances of renting the property out.

If you’re buying as an investment to build your future nest egg, not just as a lifestyle decision for future holidays, location is critical as it will have an impact on the return from holiday letting. Just remember that if your aim is to rent out your holiday home, you will have to ensure it is furnished and equipped with everything that would appeal to holidaymakers, so factor this into the initial purchase price.

If you are considering buying a unit within a resort development, be sure to check the fine print. These properties are leased back to the manager of the resort and offered as holiday accommodation, with the option to use the property yourself at certain times of the year. But the fine print may involve acquiring a share of a managed investment scheme, which could include having a stake in the total income of the resort but also being liable for your share of the expenses incurred by the development.

As is the case with any investment decision, there will always be pros and cons. Click here for a comprehensive list of pros and cons from the perspective of a property investment expert.

Post by ShelMarkblog 17 Sep 2020 0