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Are holiday homes a good investment?

Are holiday homes a good investment?

Taking out a home loan to buy an everyday property is commonplace. But more Australians are turning towards the lure of being real estate investors, purchasing rental properties across the country.

One option is to buy a holiday home, but is this a good investment?

The lure of holiday homes

New findings show one in 40 people own a holiday home, according to Roy Morgan Research. However, Melburnians are leaping ahead of the national average, with one in 20 residents of the Victorian capital owning a holiday home.

“The lucky few with holiday homes are, unsurprisingly, more likely than the average Australian to have had a holiday in the past year, and they also took two more trips on average,” said Angela Smith, Roy Morgan Research Group Account Director – Consumer Products.

Being able to head away to a holiday home is certainly appealing. But are these dwellings sound investments?

Popular Australian spots

There are plenty of popular spots across the country that could make for a good investment.

According to research from Australian Property Investor, Victoria, New South Wales and South Australia are the states with some of the hottest suburbs when it comes to rental gains for three-bedroom homes.

Spotswood, Highett, Windsor and Carlton took out the top-four spots for the biggest rise in rental rates, all suburbs hailing from Victoria. Coburg North, Cheltenham and Mentone are also popular spots, while Sydney’s Randwick, Rockdale and Neutral Bay also posted strong rental gains.

But does an everyday investment equate to a holiday home purchase? That might not always be the case.

The pros and cons holiday homes

Careful planning is essential if you own a holiday home and want it to act as a steady investment.

“With the ideal holiday rental, you should aim to cover one month’s mortgage with one week of rent.  This will allow you to cover the annual mortgage in only 12 weeks which leaves only upside from further bookings, plus time to use it yourself,” said Ali Cassim, RateCity Spokesperson.

Remember, just because you’re a fan of the coast or desert, doesn’t mean every other family or couple under the sun will want to stay at your property. Preparing for uneven cash-flow is imperative, and you should also ensure you’ve got enough money set aside to cover mortgage repayments, in case demand for holiday rentals slumps.

However, there are certainly benefits to investing in a holiday home.

“Often holiday rental owners find that there is less wear and tear than long term rentals as the property is checked more often,” Cassim stated.

Most importantly, make sure you’re buying for the right reasons. If you want an investment, you need to treat it as such and effectively market your property to attract short- to medium-term tenants. And don’t forget to use a home loan calculator to work out how much you can afford to borrow.

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