Is a Beach House a Good Investment?

October 23, 2015

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Buying a beach house is the Australian dream, but is it a good investment?

As the holiday season approaches, 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.

Research your location carefully

One of the first rules to investing wisely in beach property is to avoid making an emotional decision. However, if you’ve fallen in love with a particular community you can use this as a good starting point. 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.

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 rent it out? 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.

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. 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.

Choose a local real estate agent

It’s worth hiring a localized 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.

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.

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