Buying an investment property for your holidays
When most people consider purchasing an investment property they normally think in terms of residential or commercial rentals. That is, they buy a property expecting to rent it out to long-term tenants. While this is an effective investment proposition and has been successful over the years there is less known about purchasing a holiday investment property.
We've just come back from a weekend in Fremantle staying in a holiday property. The unit was sited amongst a block of 1 and 2 bedroom apartments that was oiginally built in the 70's. From the outside the building was very ordinary but inside the unit the owners had renovated the living space into something very tasteful and comfortable.
We came across this unit from some online hunting and were able to secure it for $70 per night (fairly cheap when you consider most hotel rooms range from $110+ per night). The selling point for us though was its own kitchen and amenities which allowed us to cater for ourselves without having to dine out for every meal.
It then challenged us to think about the possibilities of buying into this market fo a couple of reasons;
- Cheap holidays - obviously this is the biggest bonus. Not having to fork out cash every time you want to take a holiday is big plus.
- Location - If you have your own property in a location where you are likely to use it often then it can also provide a major benefit. Most of our family live in Perth so we always trek north for Christmas, major family functions and the occassional gathering. This event, with our four children, can sometimes be an insurmountable mission especially when we require staying with family members. Being able to have our own place that isn't too far from the action but far away enough to give us some space would be great.
- Rental income - when we're not using the property we can rent it for others to use and hopefully this will pay the mortgage.
There are several points to consider though if you're planning to buy an investment property for this purpose.
- Is it a popular holiday tourist destination? - There's no point buying a lavish townhouse in some outback mining town hoping to rent it out to holiday makers. If tourists don't flock to your town then you may need to look elsewhere.
- Do tourists visit all year round? - The answer doesn't have to be 'yes' to this question. However, if it's a 'no' then you will need to charge accordingly. For instance, the property we stayed in charged $70 per night over the winter months and this doubled to $140 in the summer months when Fremantle attracts more tourists.
- How much work do you want to do? - Just like residential or commercial investment property this question needs to be answered. If you don't plan to get too involved then buy an established site that won't require any extra renovations or continual maintenance. Just expect that you will pay more for this.
- Who will manage the property? - Depending on your distance from the holiday property will determine whether you can manage the property effectively. If it is too far away then you may need to consider employing the services of a management company who can administer everything from the payments to maintenance, advertising and cleaning.
- How often do you want to stay? - This is a big question in determining the effectiveness of buying a holiday investment property. If you want to stay often and presumably in the peak tourist times then renting it out to the public may not be a viable option. In this case you're probably better to just purchase the property and maintain it for your own use. Otherwise, you may find you'll need to coordinate your holiday periods so they don't clash with the peak tourist season.
- Can you earn enough from the holiday rent? - Some holiday rentals make more money in the 3 months of summer than they could as a residential investment for a full year. On the other hand, some holiday rentals make less than if they were rented out for a full year by a long-term tenant.
This list of questions may be a helpful start if you're thinking of getting into the investment property market. Do the math and think pragmatically of all the reasons why it won't work. This way it will ensure you make a right decision as you step forward.
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