As a child, I remember have a family holiday shack down in Dover, Tasmania right on the waters edge. Its where great childhood memories are formed. For many though, the idea of a home away from home may seem like a pipe dream, but seeing as our holiday options are more limited due to COVID, maybe it’s time to consider making your dream a reality.
Many people dream of having their own private getaway in a sunny coastal town or a cottage tucked away amongst the tranquillity of the bush. After all, it means spontaneous weekends or mini breaks away without the burden of bookings and thousands of dollars spent during peak periods on holiday rentals.
If you make a smart investment choice, purchasing a holiday home doesn’t have to be a financial blow out. However, it’s important to consider your purchase carefully and balance what you want out of a holiday home personally and what makes sense for you from a financial and investment standpoint. My guide will help you get your head around what to consider and where to start.
Start with a budget and research
Figure out your budget before you start looking for properties. This includes determining if you have any equity in an existing property and getting pre-approval on finance. Undertake plenty of research in the areas you want to buy to determine what you can afford and what your finance options are. Shortlist your favourite properties and consider which ones are most feasible financially and offer the best chances of a high resale value.
Location, location, location!
When buying your own slice of paradise, the first thing to consider is exactly what your idea of a slice of paradise is. Choosing between the coast and country is a great place to start. Consider hobbies in the family such as hiking, surfing, kayaking, fishing, etc. Find a spot you really enjoy and make sure the property and location fit your lifestyle and preferences, as this home is likely to be your holiday destination for years to come. You should also consider resale value in case you want to sell later down the track. So, look at things like proximity to schools, shops and public transport and other amenities. If you’re considering living permanently at the property further down the track (such as when you retire), it’s a good idea to find somewhere that’s close to medical services and with a local community feel.
Consider ongoing costs
It’s easy to get carried away with the prospect of rent-free holidays without considering the burden of upkeep costs. Make sure you budget for both upfront and ongoing expenses, which include utilities, rates, maintenance costs, repairs, insurance and more. Don’t forget to factor in your budget for furnishing the place as well! Understanding all of the ongoing costs will help you decide, early on, whether you need to rent it out when unoccupied by your family to offset the expenses, or, if you can just keep it as a private oasis.
What features do you want?
Consider the features that are must-haves in your holiday home, from how many bedrooms you’ll need to how big you want the living room and kitchen areas to be. Is a view essential? Do you mind being close to the neighbours? How much repair work and maintenance are you willing to do? Is the property secure? Are there shops nearby? Is a pool part of your paradise? Or, do you need big open spaces for activities? These are all questions to consider carefully before jumping into buying a holiday home, no matter how idyllic it may seem.
Will you rent it out?
Renting out your holiday home is a great way to offset costs and even make a potential profit. You could rent it out as an Airbnb or for short term contracts. Even if you don’t end up making huge amounts of profit from rent, it’ll certainly help you pay for things like insurance and upkeep costs, which you’d be paying for out of your own pocket otherwise.
Consider property management
If you are planning to rent out your holiday home, you may also want to consider a property manager so you can avoid the hassle of managing tenants. This can be a great, stress-free way of ensuring your property will be looked after, but it is also another cost you will have to consider.
If using a short-stay rental platform like Airbnb, you’ll also need to consider the cost of keeping your home clean and tidy. This may involve employing someone to do the job. A property manager can help with all management fees. These costs will vary by location and it’s important to factor them in when setting rental rates and forecasting the profit you’ll make from renting out your holiday home.
Figure out tax implications or benefits
Keep in mind that you may be subject to other income taxes if your home isn’t negatively geared. If you plan to rent out your holiday house when you’re not using it, you’ll also have to pay tax on any income earned, although you may be able to claim deductions for expenses.
If your holiday home is also an investment, it means that some of the running costs (such as interest on a home loan and maintenance) may be tax deductible. However, it’s important to be aware of the ATO’s restrictions around this. Read more about holiday home tax deductions.
Styling your holiday home
There are many things to consider when buying your first holiday home. Once all the serious stuff is taken care of, it’s time for the fun part… styling. A good approach is picking a theme that suits your location, whether that be coast or country. Comfort and low maintenance are the main objectives to decorating your getaway. Big comfy couches and ottomans are great options, as is a big dining table for when friends and family are over. Keep your cupboards stocked with the basics, but don’t skimp on the luxuries like a great coffee machine.
DISCLAIMER
The information contained is general in nature and may not suit your individual financial and personal circumstance, please contact your professional financial advisor, the ATO or your accountant for specific financial advice.