Many of us have dreamed of owning a holiday home, creating an escape from the hustle and bustle of city life. Holiday homes are great for bringing family and friends together and making memories. Whether it’s a beach house or a place in the bush, it’s a place to unwind and relax. It can also be used to generate income as a short-term rental property when you’re not using it.  

If this is on your bucket list, then here are some things you need to keep in mind.

Lead with your head

Firstly, plan how you’re going to use the property and finance it. For example, if you want somewhere to escape to every weekend, can you realistically afford to buy somewhere a few hours away and keep it just for family and friends? Would you consider buying with other family members? Or would you prefer to rent it out to cover costs, and how many weeks rental would you need to rent it to become profitable?

Most holiday homes charge peak rental for school holidays, the summer break or the snow season – times when you probably want to stay there yourself. So, be honest about the trade-offs you’re willing to make.

If you would need to let your property at least part of the time, then location is key. The home will need to be easy to maintain as well as have the amenities and aesthetics that paying guests want. Including things like a BBQ, pool, ceiling fans or heating and comfortable furnishings. All of these can bump up what a rent-worthy property costs to set up and the time you need to commit to it. It’s a good idea to check out other rentals in your preferred areas to see what successful holiday lets offer and what fees they charge.

Holiday home finance is different

Lenders and the ATO view a holiday home as an investment property – whether or not you rent it out. Lenders want a bigger deposit and higher interest rate than for an owner-occupied property. While you may be able to use the equity you have in your main home for the deposit, lenders still want to see that you can service the loan. Some take proven short-term rental income from the property into account. Otherwise, they only accept long-term lease rental projections. We can review your circumstances and prepare an investment plan to help identify properties that may have a greater chance of being approved by lenders.

You can get an idea of what properties earn on sites such as Airbnb’s AirDNA.ⁱ

While it’s true short-term holiday lets could earn much higher rents, the income may not be year-round, even though the property’s ongoing expenses and upkeep are. These include extras like specialised landlord insurance, property listing website costs, regular maintenance, cleaning, utilities and the replacement of household items such as towels and kitchen items. You’ll also need to consider the current council rules for short-term lets. In some areas there are restrictions such as the number of weeks a property can be let. These rules can change and it’s the landlord’s responsibility to stay up-to-date.

Tax implications

The good news is that you can claim property-related costs as a tax deduction. If you’re only renting for part of the year, then the deductions are for the rentable period only. And, if you’re thinking of buying the property through your Self-Managed Super Fund, remember that it can only be used for maximum income generation and not family use. It’s a good idea to check with the ATO website or your accountant about the tax rules around rental income and any capital gains you’d have to pay if you sell.ⁱⁱ

While a holiday home can become your own piece of paradise and create many happy memories, organising how to finance it takes preparation.

Please get in touch if you’d like to chat through your options so we can start getting things organised for a successful completion on your dream holiday home.

i https://www.airdna.co/

ii https://www.ato.gov.au/Individuals/Investments-and-assets/Residential-rental-properties/rental-expenses-to-claim/