Is buying a holiday home a good investment?

Is buying a holiday home a good investment?
Thinking of buying a holiday home as an investment property? Find out what conditions make holiday rentals a smart investment property choice.
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Many Aussies dream of owning a holiday home, perhaps in a coastal town, or cozy cabin in a regional setting.

In years gone by it would sit vacant most of the year until a family get together or a Christmas holiday.

Short term accommodation platforms like Airbnb and Stayz now mean it's now possible to generate cash flow from these holiday homes all year round.

But is it enough to make a holiday home a good investment property?

Before you consider buying a holiday home, here are the costs associated with owning an investment property and some tips to consider when buying a second property.

In addition to these upfront costs, to generate income on platforms like Airbnb, you need to consider the ongoing time commitment of managing a rental home.

Here is a helpful guide to deciding if a holiday home is a good investment.

Goal setting

With any big purchase, it’s important to consider what your goals are.

When buying an investment property or holiday home, you need to decide what is your main motivation.

Having clear goals will help you decide where to purchase, and what sort of property you are looking for.

You need to weigh up whether your “holiday home” is for your family to use, to generate passive income or you’re trying to achieve both.

For example, buying a holiday home purely for you own use, means you can buy in the location most desirable for you. It may be a region with sentimental value, or close to relatives or friends. On the flip side, this might mean it isn’t going to generate passive income all year round, as it might be dependent on the weather or time of year.

Many holiday homes in Australia sit vacant for up to six months of the year.

You need to understand what’s realistic when deciding what your motivation is for buying an investment property.

Buying a beach house as an investment property might mean it's only able to generate income on a rental platform like Airbnb in the summer time. This might also coincide when you want to be able to use it.

If that’s the case, you may be happy to accept that it won’t generate income all year round, but you will be able to use it whenever you like.

However, if you are looking for passive income, you may need to buy in a region that is attractive to holiday goers all year round.

Another reason you might be buying a holiday home, is for capital gain.

Usually, this means holding onto a property in a high-demand area, that will grow in value over time.

Property type

Once you have decided on your financial and personal goals, you can narrow down the property type.

You may be looking for a low maintenance unit with a couple of bedrooms. Or you might need a big house with plenty of space to host relatives for the holidays.

These decisions will also impact your earning potential as an investment.

The property type will also influence how much you can charge from guests throughout the year.

It’s also important to factor in additional costs associated with different properties such as:

  • Body corporate fees for units and townhouses

  • Pool/garden maintenance

  • Property management fees

  • Cleaning fees

  • Registration fees for STRA

What to charge

If you are looking to turn a profit and rent out your holiday home during the year, you need to research other rentals in the area.

Go onto short term rental websites like Airbnb and Stayz, to see what other accommodation is being rented for.

Many online platforms like Airbnb also have useful tools to help estimate what you can charge, and what fees are associated with using their service.

Finding an affordable price setting is important as by making it too cheap, you may only break even after cleaning fees, and fees to use the platform.

However overpricing your place might mean not getting much business.

When setting your goals at the start of your investment journey, it’s important to be realistic about how much you can charge, and factor in if you can afford to cover the repayments on your loan yourself, without income from rentals, as there is no guarantee you will be having guests all year round.

Fees associated with short term rentals

Regulations and fees differ from state to state for short term rentals. They will also depend on which platform you list your property on.

Make sure you research any updates in the state and property of your investment property, especially if it is in a different state to where you live.

State by State

NSW

NSW recently updated their regulations for Airbnb and Stayz rentals, which now need to be registered as STRA properties.

Some regions in NSW now have limits on how long guests can stay depending of whether the host lives at the property or not.

These restrictions need to be factored in when buying your investment property, as you may not be able to rent it out all year round and when you are able to rent it out, may be the same time of year you were hoping to use it yourself.

Queensland

In Brisbane City Council for example, there are provisions for all types of short-term rentals and the assessment of a proposal considers the potential impacts on the immediate neighbourhood. Check out Queensland laws here.

Victoria

Changes to the Owners Corporations Act 2006 were introduced in February 2019 to help prevent short-term accommodation apartment buildings being used to host unruly parties. The reforms allows owners to take action against other owners and guests, who are now jointly and individually liable for any compensation, fines, and awards for damage to common property.

Northern Territory

The Northern Territory Government has not announced any reforms or legislation for the short-stay accommodation sector.

Tasmania

According to the  Short Stay Accommodation Act 2019 , booking platform providers are required to collect and display certain information regarding short stay premises listed on their booking platforms, and must also report this information to the Director of Building Control on a quarterly basis, within 30 days of the end of the quarter. Read The Short Stay Accommodation Act 2019 for a full outline of Tasmanian laws.

Western Australia

In WA, the Department of Local Government, Sport and Cultural Industries is currently investigating the implementation of a new state-wide registration system. Under the proposed registration system, providers of short-term rental accommodation within Western Australia would be required to register their property to operate and advertise, including on online booking platforms.

ACT

In 2018 the Territory Government said it had considered the regulatory settings that apply to short-term rental accommodation, such as Airbnb, and were not proposing any new regulatory framework.

The bottom line

When considering an investment property as a holiday home, success will be measured based on your personal goals.

If you aim to generate passive income, it may come at the expense of your own use of the holiday home. Government regulations, fees and seasons may all reduce the time you can use it yourself.

If you are wanting to use the property for you and your family to use throughout the year, you may not be able to generate enough passive income to earn a profit throughout the year.

Your own goals will ultimately determine if you can earn money from your investment property, but buying in a high demand area will benefit you in the long run with capital gains.

If you are ready to speak to a lending specialist about an investment property loan, head online to chat to loans.com.au

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