Pros and Cons of Investing in Holiday Homes

Investing in holiday homes can be a successful property investment strategy and provide a lifestyle investment if you use the property. So here is a list of the pros and cons you must consider before taking the plunge and pursuing this strategy.

What is the holiday home property investment strategy?

• Renting out the property to holidaymakers as a ‘holiday let’. It can be homes, apartments, or townhouses.
• They are generally close to holiday destinations: sea change, tree change, and local attractions.
• There are plenty of ways to advertise holiday homes and an opportunity to build a business in its own right.
• Your property ideally needs to stand out and be attractive to the ‘getaway’ 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 home – think appliances (large and small), cutlery, plates, beds, televisions, etc.
• You might provide linen service and other perks like 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’.

The benefits of holidays let

• An opportunity to do 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.
• It’s a great way to purchase a future family holiday home.
• It could be a retirement plan.

Negatives of holiday lets

• Involves a lot of management. This will cost you money and time.
• Your tenants are there for a good time, ‘all of the time.’
• Generally, the properties will be an extended drive/flight from your home, making it harder to check, monitor, and 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 has 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 stay for up to a week in peak or on weekends in off-peak.
• Ensure 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 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.

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 actual cost of owning a property.