January 09, 2014
Its summertime and you are relaxing by the beach when you wander past the real-estate window and see holiday homes for sale. Your mind turns to the idea of investing in a property to use for your own holidays that can also be rented out for part of the year to help with costs.
One important question may be whether you need to borrow money. Will the bank give you a loan? Before we get to that, let’s touch on some other important areas that you need to think about when investing in a holiday home.
Location – property values in holiday areas are more volatile than most metropolitan areas. When times are tough, the holiday house can be one of the first things to go and prices may fall. Even in the good times it generally takes longer to sell in holiday markets compared to metro markets.
Costs – holding costs for a holiday rental are considerably higher than for a standard rental. Agent fees to manage the property can be 15% of the rental yield or higher, plus additional costs for cleaning and maintenance.
It is best to understand the market for the area you are looking into, and to do this you need to do some research and talk to local real-estate agents. They can also advise you on the market for holiday rentals in the area.
Tax – there are always tax implications for an investment and youneed to talk to your accountant or tax adviser. It is important to understand that any nights you spend in the holiday home not only means less rent, but also reduces the deductibility of expenses.
Now we can come back to the question of how to come up with the money to buy the holiday home. Generally the banks will let you borrow up to 80% of the property value. So at least 20% (plus costs) needs to come from somewhere else, for example from savings or borrowing against the equity in your home or other property.
If you do need to borrow money, the next consideration is whether you need to rely on holiday rental income to make the loan repayments. Given that holiday rentals can fluctuate, and even have long periods vacant, it is not so easy to demonstrate this as a source of reliable income.
You might be in the wonderful position of being able to show the bank you can make the repayments yourself, without needing the holiday rental income. If this is not possible, then it is important to get as much information as possible from the agent about historical and estimated market rental.
If you would like to know more about your options for getting a home loan to invest in a holiday home or any other home, contact Craig at firstname.lastname@example.org or call on 0411 782 440.
Image “Beach Hut And Boat” courtesy of Simon Howden / FreeDigitalPhotos.net