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• Buying Holiday Homes

Buying Holiday Homes

Discover the real costs and legalities of buying a holiday home. Plus find tips and advice.

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Having a holiday home is a fantasy embedded in the Australian psyche. Around 8.5% of the nation’s households own a holiday home and about 75% of these are in coastal areas, according to a 2005 report by BIS Shrapnel.

But unless you’re blessed with big bucks, you’ll need to rent out your holiday home to help cover costs, and the practical realities of this can be a financial burden.

If you’re considering investing in a holiday home, it’s essential to understand the financial implications of owning a second house. And, if you’re hoping to make some money from renting it out, you will need to understand the rental market and what holidaymakers expect for their money.

The Real Cost

You may be saving on hotel rates and airfares, but owning a holiday home can be an expensive business.

There’s general maintenance, which may include gardening, repainting and repairs. You may need to pay land tax, an annual tax on the land value, on any property you own that’s not your main residence. Each state and territory charges different rates, but the more valuable the property, the higher the land tax. If you plan to rent it out as a holiday home you may also need a property manager at the local real estate agency to deal with renters, which can cost 10 to 15% of the rent.

Also factor in the cost of advertising to holidaymakers and insurance costs.

Legalities

Kathy Bowman of Property Management Southcoast says you need 100% building and contents cover, public liability insurance for renters in your property, and possibly short-stay insurance cover.

‘This covers loss of rent if there’s damage to the house,’ Kathy says. ‘If your house is rented out for five weeks, and the renters in the first week trash the place, you may not be able to rent it out for the remaining time and may have to find alternative accommodation or refund money to the other renters.’

While the Australian Tax Office (ATO) lets you claim some running expenses, such as insurance and council rates, if you’re getting any rental income from the house, the claims are limited to the proportion of the year your house is rented out. Visit www.ato.gov.au.