How to make your holiday home work as an investment

Holiday homes that sit in idle month after month can be a huge financial waste for any individual. That is why growing numbers of Australians are looking at how to turn their property into a financially strong asset by renting it out when they’re not using it.

This option is made more viable with the rise of home swapping and holiday letting websites such as Airbnb, which give owners access to people searching for a place to stay in their area. Of course, the owner can block out certain times of the year to use the property.

A home that is empty for 11 months of the year can develop unique problems such as dampness from a lack of regular use, so renting it out can be a great way to make sure the property isn’t devalued by neglect.

This all might sound wonderful but there may be pitfalls the owner can face such as exposure to land tax and capital gains tax. A prospective buyer should be aware that at some stage of their ownership and potential sale of a holiday home, these two significant property taxes may have to be paid.
In addition, there are indirect implications, both negative and positive, about what amount of income tax a purchaser will pay each year based on what investment property or properties they own.

This should not be considered as a short term plan.To get a decent return, anyone considering buying a place to rent out when it’s not used as a holiday home should take a view of at least eight to 12 years. You should also choose an area you will enjoy for holidays for at least a decade, or somewhere that is easy to lease out all year round.

The worst-case scenario is that after a couple of years you no longer want to holiday in the area where you’ve bought your property. Or, even worse, you find the area has a high vacancy rate during the typical holiday season so yours sits empty.

Many Australians have found a way to make this real estate investment work, but the advice here is to make sure you do your homework having a few holidays in the spot you’re considering purchasing in before making the decision final.

Contact either Owun, Suzanne or Costa on 02 9517 1818 or newtown1@mortgagechoice.com.au to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!

Posted in: Property investment

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