28 NovDo Holiday Homes Make Good Investments?

holiday-homeLots of Australian families consider the idea of buying a holiday home, because if you already spend your holidays away at a favourite location it can seem like a logical idea to buy a home there.

After all, you get the benefit of having a property available whenever you want to take the family on a vacation. There might also be the opportunity to earn rental income from other holiday makers throughout the year.

While it seems like a great idea, does a holiday home really make a good investment? Here are some things to consider before you jump in and buy that summer vacation home:

Tax benefits

Yes, there are some tax benefits you could take advantage of for renting out a holiday residence for a certain period throughout the year. Depending on how much you borrowed to purchase the property, there might also be other tax advantages associated with negative gearing.

For example, you might be able to deduct a portion of your mortgage interest repayments, council rates, water rates, insurance premiums, holiday rental management fees, cleaning, and maintenance costs, along with any depreciation in capital value.

Keep in mind that short-stay holiday homes are generally offered to holiday makers fully furnished. You’ll be required to provide things like furniture, whitegoods, appliances, cutlery, and crockery. In some cases, there may be bigger tax benefits for depreciating these items.

However, your accountant may pro rata your deductions. This means all your costs could be calculated based only on the number of days throughout the year the property was tenanted.

It is also important to remember that capital gains tax will be applicable on the sale of the holiday home whether the property is rented or not as the property is not classed as your main residence.  So make sure you seek tax advice before putting your property up for sale.

Free holiday

It’s common to hear some landlords say they want to purchase a holiday home in another state in order to take advantage of a ‘free’ holiday. If you are required to travel interstate to visit your vacation property for maintenance purposes, the cost of your travel and meals could potentially be tax deductible – but only if the property is being rented at the time you travel there.

Always take the time to check with a good accountant what you can and can’t claim in relation to your property.

Sporadic rental income

It’s true: Holiday rental homes in Australia can command great short-term rental rates. In peak seasons, it’s common for many beachside or riverside holiday homes to fetch premium rental rates per night of accommodation from tourists.

If your property is in a popular holiday destination location, it’s possible for some residences to earn a year’s worth of rental income over just the busy summer period.

However, during quiet seasons the property may sit empty for a period of time. Are you able to cover the ongoing costs of owning the property if you don’t have regular rental income coming in?

Maximising your holiday rental benefits

For most people, buying a holiday home is more about lifestyle than investment strategy. No matter what your reasons are for buying a short-stay holiday home, always take the time to discuss your options with a good accountant and a financial advisor.

They’ll help you determine which accounting records to keep track of and discuss various ways to help maximise the benefits you get from owning a holiday home.

Melissa Nieuwenhoven

Managing Director
e: mel@nieuvision.com.au

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