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Holiday Home For Rent

Purchasing a holiday home is a dream come true, and it can be a great investment too, but there are four key things to consider before buying, writes Debbie Roberts.

By: Debbie Roberts

30 November 2020

You may have been thinking that now could be a good time to look at buying a holiday home (aka bach or crib). It certainly seems to be a tempting idea for many people at the moment, especially since international travel is likely to remain pretty limited for a while yet, and house prices across the country are climbing. So, is a holiday home a good investment?

There are some obvious (and perhaps not so obvious) things to consider before you make your decision to purchase.

1. Does this purchase fit into your long-term plan? Is having a holiday home something that you have on your list of goals for the future, or is this something that has recently popped up on your radar, or is this the place you would see yourself retiring to? Any of these reasons may be valid, but you need to find out whether purchasing a holiday home will affect your ability to achieve any other goals you might have. Location may play an important part in this. Is the location of your holiday home likely to achieve good long-term capital growth? Or is it a remote little hideaway for you to escape to, that would be unlikely to increase much in value?

2. Can you afford it? If your source of income is uncertain, this may not be the best time to be increasing your personal debt. If this is not a concern for you, then speak to a mortgage adviser early in the process to determine how much you can borrow, how much that will cost you, and whether you would still be able to purchase investment properties after this purchase (if you want to). Does this fit your budget?

‘We have many clients who purchased their holiday/retirement home much earlier than they expected to, while still continuing to improve their financial position through property investment’

How often do you realistically think you’ll be able to use the holiday home? Work out how many nights per year you expect to be able to stay there, and compare how much it will cost you to own (mortgage, rates, insurance) versus how much it would cost you to rent accommodation in the area for the same number of nights per year.

If you decide that it still makes sense for you to purchase now, what are your options if your income reduces or your situation changes? Would you sell it? This could be difficult and/or take a considerable amount of time if it is in an area that has low demand from other buyers. Would you rent it out? If so, would your target market be long-term tenants, or short term (Airbnb/ Bookabach), and would the rental income be enough?

3. Are you going to rent it out? This can be a great way to reduce the personal cost to you of owning the holiday home, or to help you pay down the mortgage faster. However, there are several things to consider. If you would only rent it out when you are not using it yourself, what is the rental demand at those times? How much rent can you realistically expect to receive per year? What insurance is appropriate? What are the other costs and implications involved (cleaning, maintenance, laundry, drug testing, rates, tax)? How would you manage the rental side of it (and do you have time to do this yourself)?

4. What are the tax implications? You will need to speak to a good property accountant in order to ensure that you purchase the property in the correct entity (structure) for both asset protection and tax purposes. You may be able to get some tax benefits, especially if you rent the property out during the year.

Although, we would generally say that a holiday home is an emotional purchase, they can also be a great long-term investment. We have many clients who purchased their holiday/retirement home much earlier than they expected to, while still continuing to improve their financial position through property investment. Some have also been able to obtain sufficient cash flow from renting these properties out to cover most (if not all) of the costs of owning them.

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