How to invest in a holiday home on the Great Ocean Road
With international travel off the cards, many people are opting for a getaway that’s closer to home – staying along the Great Ocean Road or somewhere else domestically, to take a break when restrictions allow.
If 18 months without the usual travel has seen your savings rise, you may be in the position to achieve this domestic getaway dream via your own holiday home.
The benefit of owning a holiday home is that you’ll have a vacation retreat for a little R and R throughout the year, while also potentially gaining additional income if you rent it out.
So, what should you be aware of before investing in a holiday home? Here are some tips.
Be clear about the purpose
One thing to keep in mind is that the times you are likely to want to make the most of your getaway could also be the times that you’re likely to make the highest rental returns.
For example, a beachside property is likely to be in demand during summer – which might mean it’s off your destination list when the weather is warm.
Is this likely to be an issue? Are you purchasing this property for its rental potential, or purely for you to have a getaway?
Before buying, consider what’s more important to you. That way you can budget and plan your cash flow accordingly.
Remember the golden rule – location, location, location
The golden rule of property doesn’t just apply to where you live every other day; you need to consider it when it comes to your holiday home, too.
It’s wise to be looking for a property that offers you solid capital growth potential.
When searching for a property, make sure you take into account the supply of holiday homes in the area you are considering, and the demand in that market.
Ideally, you’ll be looking for a location that only gets people during a short term season. Also consider whether there are other industries in the local area beyond tourism. That way, you are increasing the likelihood the property remains tenanted regardless of the time of year (or if there’s a global pandemic!)
Access to amenities and major infrastructure also means that you’re increasing the appeal of the property to more potential tenants. For example, a nearby supermarket means that you’ll be appealing to a wide base of potential tenants, compared to an isolated shack atop a hard-to-reach mountain.
Check the zoning in the area the property is located
Its important to know what local zoning laws might be in the area where you are looking to purchase.
That’s because local laws could place restrictions on short-term accommodation use. For example, does the local shire or council have any kind of local laws that dictate the number of days you can rent out a holiday home?
Perhaps the Local Government authority needs you to apply to be a short-term accommodation provider?
Make sure you do your homework, so you know the rules before you fall in love with that picture-perfect getaway!
Understand the tax implications
Some things that should be on your radar:
- Tax deductions – You can claim tax deductions for expenses associated with earning rental income (interest on the home loan, maintenance costs, etc.), but only to the extent the home is rented out or genuinely available for rent.
- Negative gearing – If the property’s costs are greater than the income it produces, you may qualify for tax breaks through negative gearing. This means you can deduct any losses against other income, like your salary, wages or business income.
- Capital gains tax – You may be subject to capital gains taxwhen you sell, assuming you make a gain. If you own the property for more than 12 months, however, you may qualify for the capital gains tax discount, meaning 50 per cent of the gain is tax-exempt.
- Stamp duty and land tax obligations.
Something else to keep in mind is that you’ll need to be meticulous about record keeping.
What about finance?
If you’re considering a holiday home purchase, chat to us about your finance options.
We can explain your borrowing power, including whether you can use any existing equity to help you achieve your goals.
Reach out today!