Being a property investor is often a great way to build wealth. This is provided that your property is managed well and that you work out a strategy before buying.
Of course, there are many different types of investment properties you can purchase. One option that you have as a property investor is to buy a holiday home, but is this a wise choice?
Buying a Holiday Home as an Investment
According to research, 1 in 40 people own a holiday home. This allows these individuals to use their property for their own vacation and long-weekend getaways. But, when they aren’t using the property they can lease it out to others wishing to take a break. This then makes owning a holiday home affordable, and in some instances profitable. Plus, it helps to pay off the mortgage on the property, if it exists, and to keep the property well maintained.
But, before you rush out and buy a holiday home as an investment there are a few aspects you need to consider. These are the location of the property, how you market and maintain the property, and how you’ll cover your expenses when your vacancy rates are high.
Holiday Home Must Dos
Before buying a holiday home you need to plan ahead, so that you can create a steady stream of income. The most important aspects you need to consider are:
1. Location – There are many ideal holiday home locations situated across Australia. The most popular locations are those near lakes, rivers and the ocean or in other scenic areas with tourist attractions, and pubs, clubs and shopping precincts nearby.
2. Mortgage Repayments – If you’re taking out a mortgage for a property then you need to calculate how much your property needs to make to cover your mortgage repayments. Holiday leasing experts suggest that you should aim to collect enough revenue in 7 days to cover a month of your mortgage. For instance, if your holiday rental mortgage is $2,000.00 a month, then you should be charging $285.00 to $290.00 a night for your property. This will then enable you to cover your monthly mortgage repayments over 12 weeks of rental so you can account for vacancies and when you wish to use the holiday rental yourself. Plus, it allows you to generate a favourable return on the property with further bookings.
3. Cash-flow – You need to prepare for uneven cash-flow with a holiday rental. To protect yourself from this, it is recommended that you have a separate account for your holiday rental and that you collect funds to cover the times when the property isn’t leased.
4. Property Maintenance – Holiday rentals may have periods of vacancy, but the upside of this is that these periods are usually only short-term. Plus, a holiday rental is often used less than a home you reside in, therefore the property incurs less wear and tear, which in turn, means less maintenance.
5. Marketing – A strong marketing plan and strategy will allow you to attract short and medium-term tenants all-year-round, so plan ahead and look for opportunities that are cost effective.
Do you want to know more about holiday homes as an investment? If so, then contact eChoice and find the right home loan for YOU today.
Written by eChoice