At one time or another, we’ve all had dreams of purchasing an investment property as a holiday home, with a desire to improve our lifestyle while making a good financial return. Sounds wonderful, but it’s essential to not let your heart rule your head.
Just like any investment, it’s important to weigh up all the pros and cons first.
Location Location Location
Think carefully about a destination that has shown consistent growth over the last 10 years and isn’t too seasonal. Generally, trends throughout Australia suggest that easy access to major cities is important, with the promise of higher returns and higher capital growth.
Also, make sure that attractions such as cafes, restaurants, shopping, beaches or great views aren’t too far away.
Managing and Marketing Your Investment Property
Assuming you are looking for maximum occupancy, you will need to ensure that your holiday property compares well with other holiday homes in your area.
You’ll need to decide whether to manage the investment property yourself or find someone to take care of it on your behalf. The latter is what most busy people who don’t live near their holiday home do, but you’ll need to do your homework carefully and find an agent that has proven credentials.
The managing agent can take care of everything, from advertising the property, taking bookings, organizing, cleaning and re-stocking as well as general maintenance, to ensure your home is always guest-friendly.
The Taxing Question
When you purchase a holiday home and rent it out, your income must be declared on your tax return, even when you offer ‘mates rates’ to friends or family.
If you stay at the property part time and lease it the rest of the year, you’ll have to persuade the Tax office that it’s a genuine investment. However, you may be able to claim deductions and interest expenses when it’s been rented out, so you need to keep comprehensive records of all transactions.
Bear in mind that capital gains tax may apply if you decide to sell or transfer the property into another person’s name – but remember, always seek the advice of your accountant before making any financial decision.
Finally, you’ll have to decide whether you envision a holiday home purely as a financial opportunity, or as a way to enjoy an improved lifestyle, with the bonus of making modest investment property returns. Naturally, we’d be happy to help you answer any questions you may have on this issue.