Buying a beach house is the Australian dream, but the real question is, is a beach house a good investment?
Many of us start making our summer plans and dreaming of a beach house to escape to.
You’ll want to keep the following factors in mind before making the leap into a beachfront investment.
Expand Your Horizons: When it comes to coastal dreams, there’s more to explore. Our guide on buying a beach house lays out pros and cons you’ll want to consider when you do decide to buy one!
1. Research your location carefully
One of the first rules to investing wisely in beach property is to avoid making an emotional decision. Maybe start by looking at the best coastal towns to live in Australia for some inspiration.
However, if you’ve fallen in love with a particular community you can use this as a good starting point. But also keep your budget in mind. For instance, if you’re looking for houses under $150,000 near the beach, don’t be deterred by pricier listings.
Compare neighbouring locations to see how they measure up in terms of proximity to major roads, popularity with tourists, proximity to the water, and the number of rental properties in the area.
2. Keep your investment’s purpose in mind
Do you primarily plan to retain your beach house for your own use, or do you wish to invest in a rental property?
You’ll need to think about your investment goals and choose a property that’s best suited to them. Rental returns can fluctuate quite widely for beach homes.
The demand is high for about 10 weeks out of the year, but can diminish severely during the winter months.
You’ll need to keep this in mind and be sure to choose a property that will still be attractive in colder months, or consider finding a permanent tenant rather than short-term holiday lets.
3. Work out your budget
Holiday properties can incur additional expenses than residential properties.
Run the numbers to be sure that you can afford it. You can’t count on your property being occupied all year, so it’s best to budget for periods of vacancy and work out whether you can afford the mortgage.
Explore more affordable areas, like cheap beach houses for sale in WA or in SA, where you can secure a coastal home for under $250,000.
Further budgetary factors to consider include the cost of body corporate or management fees, maintenance costs, and cleaning costs between tenants.
The cost of property management tends to be higher for holiday lets than for primary properties, costing you as much as 15% of your rental income.
You’ll also need to be able to fully furnish your beach house for your guests.
4. Choose a local real estate agent
It’s worth hiring a local real estate agent who knows the community you’re interested in.
Local agents will be able to give you advice regarding location, available properties, and other insider tips.
5. Consider tax implications
Rental income must be declared in your tax return, and the situation can get complicated when you use a property as a part-time home and part-time investment.
You may need to hire a tax advisor to ensure that you are able to claim deductions and state your income accurately.
It’s also likely that you’ll have to pay capital gains tax if you sell your property, unless it’s used as your primary residence.
With all of these factors to consider, it’s unlikely that a beach house is the best option for first time investors who desire consistent returns and high capital growth.
Yet when buying to diversify an existing portfolio or simply for personal use, holiday accommodation can be worth the trouble.
More on… Is a Beach House a Good Investment
Is it good to have a beach house?
Beyond investment, beach houses are great and offer a unique lifestyle perk:
- Relaxation & Getaway: A beach house provides a perfect escape for vacations or weekends, offering a chance to unwind by the ocean.
- Family Fun: Create lasting memories with family beach trips, enjoying water activities, and building sandcastles.
- Community: Beach communities often have a distinct vibe, fostering a sense of belonging and connection with like-minded people.
Does an investment property pay for itself?
Investment properties can potentially cover their own costs, but it’s not guaranteed:
- Factors at Play: Rental income, vacancy rates, property taxes, maintenance costs, mortgage payments all influence the equation.
- Positive Cash Flow: Ideally, the rent should exceed all expenses, making the property self-sufficient and potentially generating profit.
- Long-Term Strategy: Investment properties are often long-term plays. Market fluctuations can impact short-term gains, but holding for the long haul can be a successful strategy.
Careful planning and research are crucial for investment properties to reach self-sufficiency.
