Those dreams of owning a holiday home can become a reality but when you’re looking to get finance for a home that might not offer you the same financial return as a regular investment property, it’s important to be realistic about what you can afford. With tips on how to choose a holiday home you’ll love and how you can make it work for your strong financial future, you’ll be enjoying that holiday home for more reason than one.
With summer on our doorstep, many people can relate to those lazy afternoons in holiday destinations, gazing longingly at the window of the local real estate office.
Investment opportunities aside – your holiday home will mainly be exactly that. You’re buying it to enjoy a home away from home, where you can go to enjoy holidays that don’t require heaps of planning and further investment.
Another potential positive is that you could benefit from profit if you do rent it out to a tenant at times. This can work well if your property is in a desirable location that other people want to visit.
Your property also has the potential to appreciate in value over time – and this can mean a good profit. But be patient – property investment is always something that takes time.
If you have bought your holiday home as an investment, some of the ongoing costs (including interest on a mortgage and the required property maintenance) may be tax deductible – just beware of ATO restrictions and talk to your accountant first.
For long-term benefits, a smart holiday home in an area with good infrastructure could mean a fantastic transition to your primary residence for your retirement years. Be realistic about whether you could comfortably live there as an older person.
Depending on where it is located, it could also offer your children an opportunity to live in as young adults to save money for their own home.
For a reality check, check these pros and cons first.
Pros of buying a holiday home
- Rent-free holidays – whenever you want, for as long as you want
- Potential to rent out to tenants, plus potential to appreciate in value
- Possible retirement transition
- Saying goodbye to expensive holiday rentals during peak (extra costly) period times
- When you’re not using it – you can rent it out
- The potential to offset associated costs (mortgage, rates and maintenance) with rental returns
- Potential tax minimisation benefits
Cons for buying a holiday home
Remember the holding costs. Be realistic. If you’re unable to find a tenant, you’re responsible for the mortgage, insurance, maintenance fees – and more. Can you really afford it?
Finding tenants can be tough. Be prepared.
Depending on the location of your holiday home, damage and maintenance issues can be unchecked and undiscovered – sometimes leading to more costly repair issues.
Going to the same spot each holiday can lead to boredom. Do you really want to be tied to the same holiday destination – every time?
Top Tips To Buy A Holiday Home
- Don’t buy in peak season. That beach house you love this summer – or that ski resort getaway you’ll love next winter – might seem idyllic when you’re there but buying in peak season means competition is higher from other people just like you. Wait until the off-season when interest is low so you can find a better deal.
- Have a buffer. Holiday-makers can be tougher on rental properties than regular tenants. You’ll need a buffer for repairing items that break down and need repairs.
- Be realistic about the costs. Second homes require a second round of money to pay for that second round of costs – utilities, rates, loans, taxes, insurance, repairs and pest inspection – to name a few. Add them all up and talk to your accountant to see if it works for your budget.
Like any property investment – location is critical.
Buy in areas that are economically resilient and aren’t just relying on one main industry to support the population.
Smart property investments perform better over time. Hold it for a long time to enjoy the best possible capital gain.
If the boxes are all ticked – then you’re on the right journey towards the serenity of your new holiday destination.
If you need advice for a home loan or an investment home loan, speak to a broker at Lending Specialists. We have a wealth of experience under our belt and a robust network to connect you to the right industry professional for the loan you need.