Dreaming of buying your own beachside pad or forest retreat that you can enjoy part of the year and rent out the rest? Here’s what you need to know.

With international travel off the cards, many people are choosing to holiday domestically. If you have the budget for it, a great way to do that is by purchasing 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 periods when you want to stay at your holiday home may also be the times you can make the highest rental return. If your property is in a beachside location, for example, demand may be highest during summer, so you may have to forgo staying at your holiday home during those peak periods.

Before buying, consider what’s more important to you – making the big bucks or having access to the property during those peak times. That way you can budget and plan your cash flow accordingly.

Remember the golden rule

As with any property purchase, location is key. Optimally, you’ll want to choose a property that offers solid capital growth potential. Consider the supply of holiday homes in the area, as well as the demand in the market.

Aim for locations that aren’t solely reliant on seasonal crowds and consider choosing areas with industries other than just tourism, so that your property remains tenanted.

To attract a wide variety of renters, opt for areas that have access to amenities and major infrastructure.

As an example, the Gold Coast has proven popular with investors snapping up holiday homes in recent months. Beachside suburbs such as Miami, which has experienced a 12-month capital growth of 28.21% for houses, are in high demand. With infrastructure projects like the Gold Coast light rail – stage 3 in the pipeline, not only does the Gold Coast offer the lifestyle element, but also great access to amenities and major infrastructure.

Check the zoning

It’s important to understand the local zoning rules before purchasing a holiday home.

There may be restrictions on short-term accommodation use or you may need to make an application to be a short-term accommodation provider. Also be aware that in some areas of Australia, there may be laws regulating short-term rentals that limit the number of days you can rent out a holiday home, so be sure to do your homework.

Understand the tax implications

It’s always a good idea to speak to your financial planner or accountant about the tax implications of making a big purchase like a holiday home.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 tax when 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.

Like to chat 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!