YBR

What to look for when buying a holiday house

In this article:

When buying a holiday home it’s crucial to decide what the property is for, what it will achieve and over what time frame You should have expert advice on the tax implications of the holiday home Good load advice is also recommended so you get the optimum mortgage for the property purchase

It may be a good reason to buy a property: to give your family a place to holiday, where you can store all your holiday toys and not have to cart them across the country.

But when buying a holiday home it’s crucial to decide what the property is for, what it will achieve and over what time frame.

Typically, people buying holiday homes think they’ll use the house for holidaying three or four weeks of the year, and for the rest of the time, it’ll be a rental property.

So, the family has occasional holidays and the mortgage is subsidised by rental income.
However, property is an expensive purchase so always look closer at the financial assumptions:

  • Holiday rentals may be high in the area you’re buying in, but how long is the holiday season? Does the planned rental income in this short window pay enough of the mortgage to make it worth it?
  • Is your property high-demand and therefore high-occupancy? The holiday house you love may not be the house that someone wants to rent unless it has some marketable features (lots of rooms, sea views, close to ski field etc.)
  • You’ll have management costs to meet. It’s fairly normal for an agency doing holiday rentals to charge 15 – 20 per cent of the rental income to manage the property.
  • You’ll also have ongoing costs to rent-out your property, such as providing linens, replacing broken chattels, as well as gardening and lawn-mowing to keep the property at a marketable standard.

Remember also that you should have expert advice on the tax implications of the holiday home, because tax benefits generally only accrue when the property is being rented. Good advice is also recommended so you get the optimum mortgage for the property purchase (eg. interest-only, fixed interest etc.)

Home loan hints and tips

 
Being prepared when getting your home loan 
Applying for a home loan is the first step towards home ownership. It’s an exciting time, but it’s also a complex process, which includes several basic steps.
 
Can I get a mortgage if I'm not in the mainstream of borrowers? 
The most straightforward home loan applications are those from borrowers who have saved 20 per cent deposit and who worked fulltime for at least a year, under a PAYG salary arrangement. These are straightforward because the lender can see that the borrower has saved the deposit from their own income, and that they have regular employment at a certain salary. If they also have a good credit history, their application moves quickly.
 
Can I use equity in my property to build wealth? 
Some first home buyers want to turn their property into more wealth, which they do by growing their equity: that is, the part of the property’s value that is not owed to their lender. There are two kinds of equity to think about.
 
How can a mortgage broker help me get a home loan? 
Finding the right home loan can be a complex and time-consuming task, especially for first home buyers. Many borrowers navigate the daunting number of options by using a mortgage broker to source their loans – around half of residential mortgages are now written by brokers in Australia. But is a broker for you?
 
How can an offset account help me repay my home loan faster? 
If you can reduce the interest payments in your home loan, you speed the repayment of the principal amount and accelerate the pay-out of the mortgage.
 
View all articles