Should you invest in a holiday home?

Let’s face it, everyone loves a holiday.

Whether you’ve just spent the weekend away in a secluded bushland retreat, or holidayed in a home just metres from the beach, you may have wished you had a holiday home you could visit whenever you wanted.

The idea of purchasing a holiday home can sound very enticing – you generate income when you rent it out and you can enjoy it free of charge when you stay in it.

In fact, there are many pros associated with owning a holiday home. First, there’s the obvious enjoyment of a property that you can escape to without much planning or money required.

If you rent out the property to tenants, you can also benefit from additional income, as well as the various tax advantages associated with owning an investment property.

Even if you don’t make a lot of profit, it can help you pay for things such as insurance and maintenance of the home.

In addition, holiday homes allow you to claim depreciation, which is generally higher compared to other investment properties. An owner of a short-stay home can claim up to 4% depreciation for 25 years instead of 2.5% for 40 years.

Another benefit of owning a holiday home is that it can become your place of residence after you retire.

That said, there are also drawbacks to owning a holiday house.

If you’re still paying off the mortgage for your main home, you’ll have to take out a second mortgage in order to purchase a holiday home.

During periods where you do not have a tenant staying in the property, you’re still responsible for paying the mortgage, insurance and maintenance fees yourself, with no rental income to offset these costs.

Furthermore, you may want to use your investment property during the holidays, but it is likely that these will be popular times for people to rent your property.

Finally, there are also ongoing costs including property management, cleaning and advertising.

If you decide to buy a holiday home, make sure you do not rush into it and that you do plenty of research. Location is key, so investigate the best areas that will offer you the greatest bang for your buck.

Don’t forget to weigh up the different costs associated with owning a holiday home. If you are unsure whether it is financially feasible, speak to your broker or financial adviser.

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