You are about to take off to your annual holiday destination, and you have been thinking in the last few months I really want to buy an investment property. So why pay someone else rent for a holiday apartment, house or unit, when I can make money out of buying my own holiday house as an investment and rent it out when I’m not using it. Well, here are some points that might be helpful and save you in the long term.
Leasing the property means you can’t use it
One of the first challenges is you will want to use it at Christmas, Easter and school holidays. This is the time you receive peak rent in the holiday periods so you will get a much better yield but again you won’t be able to use it when you want to. If you lease it to a permanent renter you will not be able to use it when you want and the yield is normally quite low on a holiday home
High management fees and costs
Holiday homes generally attract higher management fees and because there a lot of people using your property the maintenance costs can be high as well.
Renting it out to family and friends won’t help with tax deductions
If you rent your property out you are able to offset some of the expenses against your taxable income. However if you are renting your property to family and friends this is considered to be personal use. To be able to claim expenses against your taxable income you need to show that you are actually trying to rent out your property
Cash flow of a holiday home
Looking at the cash flow of a holiday home you would normally receive a lower yield when you average it out over the year. Your expenses will be higher with management and maintenance fees increasing and your tax deductions for interest payments claimed against you investment loan can only be claimed for the time the property is rented. Not when you are using it or it sits empty.
Low capital growth
The most popular spots to holiday and therefore buy a holiday property are a few hours drive from our capital cities. What we have noticed is that these areas have experienced some of the lowest relative capital growth over the past 10 years.
So the lesson here is have a wonderful holiday, fall in love with everything about your holiday except looking at it as an investment property. See you in 2014. If you would like to know more about this topic or you would like to suggest a topic for us to write about then please contact email@example.com