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Pros and Cons of Investing in Holiday Homes

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Investing in holiday homes can be a successful property investment strategy and have the dual benefit of providing you a lifestyle investment too if you use the property yourself.

So here is a list of the pros and cons that you need to consider before you take the plunge and pursue this strategy.

What is the holiday home property investment strategy?

  • Renting out the property to holiday makers as a ‘holiday let’. Can be homes, apartments or townhouses.
  • Generally located in locations close to holiday destinations: sea change, tree change and local attractions.
  • There are plenty of ways to advertise holiday homes this and an opportunity to build a business in its own right.
  • Your property ideally needs to stand out and be attractive to the ‘get away’ crowd.
  • Around 2 hours drive from the local CBD is the magic number.

How investing in holiday rental property works

  • You furnish the house and supply everything you might need in an ordinary house – think appliances (large and small), cutlery, plates, beds and televisions etc.
  • You might provide a linen service, as well as other perks such as Wi-Fi and Pay TV.
  • Tenants will book for short stay periods, with peaks achieved around the holidays.
  • You need to attend to items such as cleaning and gardening to keep the property ‘holiday ready’.

Benefits of holiday lets

  • An opportunity to make a business out of your asset.
  • Generally higher yields vs. traditional renting.
  • Better depreciation due to the additional furnishings.
  • You can get access to it yourself in most circumstances.
  • Great way to purchase a future family holiday home.
  • Could be a retirement plan.

Negatives of holiday lets

  • Involves a lot of management. This will cost you money and / or time.
  • Your tenants are there for ‘a good time’, ‘all of the time’
  • Generally the properties will be a long drive / flight from where you live, so harder to check, monitor and / or manage directly.
  • More stuff to manage; cleaning, gardening, furniture, bonds and keys.
  • If you get it wrong, you may have a property that takes up your time, doesn’t grow in value and is negative cash flow.

Rules for identifying locations for best returns

  • Stay within 2 hours of a CBD.
  • Target areas with year round attractions and activities.
  • Target areas where people are likely to want to stay for up to a week at a time in peak, or weekends in off-peak.
  • Make sure your location has a pub, a café, a bakery and a community playground at minimum.
  • Get as close to the local attractions and main street as possible, for both tenancy and security reasons.

Real Estate Investar members can use Investar Search, its intuitive keyword function plus other appropriate filters to target holiday homes that fit their buying criteria.

holiday home search

The buying process

  • Study the rental rates of your competitors.
  • Study the rental rates of local ‘professional’ accommodation providers like hotels and serviced apartments.
  • Understand what your target tenant might pay and what they would expect in return.
  • Set your rates accordingly. You can go aggressive early and increase the rates over time.
  • Complete detailed analysis to understand the true cost of owning a property.

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