Unused holiday homes can be a bit of a luxury, but experts say there is a way to make it a more viable proposition.
Holiday homes that sit idle month after month can be a huge financial waste. 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 approach works for thousands of Australians who have a holiday home.
Ben Nash, the director of Pivot Wealth, says he has seen clients have the best of both worlds by doing this – a holiday home and an investment property.
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.
“Some of my clients with a holiday house also manage to secure ongoing income from the asset,” Mr Nash says.
Renting out your holiday home can be a great way to make sure the property isn’t devalued by neglect, says Aris Dendrinos from Richardson & Wrench Marrickville.
“A home that is empty for 11 months of the year can develop unique problems such as damp from a lack of regular use,” he says.
But he warns that a big pitfall can be the owner’s financial position and exposure to land tax and capital gains tax. So Mr Dendrinos advises owners to check with a financial expert.
“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,” he says.
“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.”
Mr Dendrinos warns that this style of investment shouldn’t be viewed as a short-term strategy. “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.
“Make sure the tenants are locked into a watertight agreement that guarantees vacancy when you need the property for a holiday,” Mr Dendrinos says.
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.
Do you rent out your holiday home? Tell us about it in the comments below.