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Is a holiday home a good investment?

Is a holiday home a good investment?

Having a weekender to escape to can be enormously attractive. Owning your own piece of your personal paradise can seem like a great idea, especially when you’re on vacation. But before you buy, it’s important to look at the hard realities of owning a holiday home if you also want to use it as an investment property.

Buy in the right place

John Lindeman, Chief Property Consultant with Property Power Partners, says that although 1,000,000 holiday homes are owned nationally, “there are still great opportunities but the problem is determining where to buy for capital growth. To find the best areas we need to look at future demand,” he suggests.

“Buying in the wrong location can be costly. Avoid the glamour retirement areas or locations with a preponderance of older residents. Towns and regions such as the Whitsundays and Sunshine Coast in Queensland, New England, the Central Coast and the South Coast in New South Wales, the Bellarine and Mornington Peninsulas in Victoria and the Fleurieu and Yorke Peninsula towns in South Australia are obvious candidates.”

Look to buy in communities that have economic resilience

Property Investment Specialist, Margaret Lomas, says holiday locations rarely have the services and infrastructure to support a growing population required for a strong investment location. "Holiday properties are usually more highly priced due to the perception of a desired location but they have historically poor growth performance,” she says.

“These areas usually have employment opportunities which exist purely because of tourism. Under these circumstances, any downturn in the economy immediately impacts on jobs and then on property prices," she cautions.

Add to this that during weaker economic time non-essential assets are often amongst the first to be sold and holiday destinations may be flooded with ‘fire-sales’, making them hard to sell. Although this is a great time to pick up a bargain!

Be prepared to wait for a decent return on your investment

So the insight is – do the homework. A weekender may need more in-depth research because it’s in an area you’re not so familiar with. Don’t let it be a purely emotional buy. Also property like all investments, tend to perform better over time. The longer you can keep it, the more likely it is to show a capital gain, so see if it matches your long term financial goals.  

If you’re considering buying a holiday home then check out Australia's comparison website, finder.com.au/home­loans, which recently listed Australia’s investment holiday hot-spots, and shows where you can find the best deal.

“Just because it’s the most popular holiday destination in Australia, it doesn’t mean it will necessarily give you the best return, from a property investment point of view,” says finder.com.au‘s Michelle Hutchison.

For example, the findings show Hobart City to be the best value holiday hot spot to buy a house, with rental yields of 4.75 percent, ahead of the iconic beach town destination of Byron Bay, at 4.70 percent. Plus a city is more likely to have a solid economic structure than a rural, or isolated community.

Look at what rental returns you can expect

Yield – the amount you can make if you do short-term rentals of your weekender is also something to research. Talk to local real estate agents that do holiday rentals and factor in management and cleaning fees in the overall costs. It may be that business for rentals is quiet outside peak holiday times, when you may want to be using it yourself.

Finally like any investment consider talking to a financial advisor before you sign up.

More information

Disclaimer: This is not financial or professional advice. We recommend you obtain independent advice before making any financial decisions.