Chat with us, powered by LiveChatHoliday homes not always restful

Holiday homes not always restful

When it comes to a holiday home, it pays to buy with your head, not your heart, writes Bina Brown.

If you are sitting on a balcony in your favourite holiday destination thinking about how great it would be to actually own your own place there, you would not be alone.

A lot of people get seduced when they are on holiday and start dreaming of what it would be like to have a weekender - or even to live in paradise permanently.

Before you get totally carried away, you might want to do a quick reality check.

If it is for your own use, then how often will you use it? If it is a rental, how do the numbers stack up and will it be rented at the times you want it? If you live there, how will you support yourself and what will the support network around you be like? Do you hope to make a capital gain? What if you find somewhere else equally as appealing?

It all boils down to making sure you are buying with your head and not just your heart, says the managing director of Keyhole Property Investments, Melissa Opie.

The beach is a great relaxing holiday spot and can make for a fantastic sea change. But if you need to rent out the property to make it a viable option, then buying for investment can be tricky.

Opie says investors have two options: lease the property to a permanent renter or let the property for a higher rent during peak periods. The first option generally attracts a low yield and you can't use the property while the lease is active. The second option means you can't use it when you most want it, namely Christmas and Easter.

Other considerations are higher management fees for holiday-let properties and high vacancy rates during non-peak periods. Then there is the issue of higher maintenance costs due to the number of people renting your property and the extra damage the sea air can cause to building materials.

Location

Like any property, location matters. Understandably, most holiday renters would like the location to be within a two-hour drive of the city centre.

The most popular spots have a village atmosphere and something that offers lifestyle facilities, such as quality cafes, shopping strips or vineyards.

The director of property research company hotspotting.com.au, Terry Ryder, says a holiday rental should be within a certain driving time of a capital city to get the level of tourist traffic to make it viable. However, owners shouldn't expect great capital growth.

Ryder says many of the so-called sea-change locations have had some of the poorest capital-growth performances of the past 10 years.

The Gold Coast, Sunshine Coast and Fraser Coast in Queensland are classic examples of where developers have flocked, resulting in oversupply and poor capital growth. In all three regions, the median prices are lower than they were a decade ago.

There are exceptions. House prices on Victoria's surf coast might have been supported by a freeway linking the area to Melbourne and the thriving economy of Geelong. "The further you get from big cities, the more the sea-change locations struggle to produce growth," Ryder says.

Holiday rental

One way to afford a potential holiday home is to rent it out for most of the year and use it for your own holidays some of the time.

The Australian Taxation Office will allow you to offset some of the expenses of running your holiday home against your assessable income. While the rent received via commercial renting is assessable income, renting your holiday home to family and friends at a minimal cost is not. This is merely reimbursing you for your out-of-pocket expenses.

Using the property for yourself and letting your family and friends use it at mates rates is considered personal use, therefore no deductions are allowed for the property's expenses for these times.

Unfortunately, it is not as simple as calling you, friends and family non-deductible and the expenses for the rest of the year tax-deductible. To be considered an investment property, you need to prove you are actually trying to rent the property.

You can do this by engaging a property agent or listing the property on an internet holiday rental website. The more you can show that you are actively finding a tenant, the more likely you will be able to claim the deductions for the property.

If in one year you personally use the property for six weeks and actively look for tenants for the remainder of the year, then you can claim 46/52 of your deductions for the property.

The general rule with any tax deduction is that it must be relevant to an income-producing activity.

Some of the most common deductions are: advertising for tenants, cleaning, gardening, borrowing costs, insurance, land tax, body corporate and strata fees.

From city to sea and back

As a young girl, Denise Pickett used to camp on the foreshore at Rosebud, on Victoria's Mornington Peninsula.

Her fond memories of the ocean and seaside adventures have never left her.

Years later, she and her husband, Alan, would sell their home and business in the city and build their dream home in their dream location.

"We had friends who retired there and we knew and loved the area," Denise says. "We saw a block of land and built a home and had a beautiful lifestyle."

The retired newsagents were so used to working six days a week they soon turned their Rye home into a bed and breakfast, which they also thoroughly enjoyed. Another lifestyle, however, also beckons.

"We have become grandparents and with our family in Melbourne, we are missing out on the lifestyle of being a grandparent," Denise says. "Nothing could have prepared us for the joy that also brings."

The Picketts are preparing for a permanent move back to Melbourne this year. "It is very hard to give this up," she says. "We have the best neighbours we have ever had and even though Rye has changed, nothing can take the beauty of the place and the ocean away."

A holiday unit at Rye still remains a distinct possibility.

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