For many of us owning a holiday home may seem key to embracing the Kiwi dream, but is purchasing a holiday home really a financially savvy move? If you’re eyeing up a holiday retreat there are a few things you need to consider up front.
First and foremost, can you actually afford it?
Choose the right property, at the right price, and take a proactive approach to generating some additional rental income, and it is possible that your holiday house could cover some of it’s costs. But of course there are some downsides to this approach…
In order to maximise rental return you need to make your holiday home available for rent as much as possible, particularly during the peak periods – as it’s during all the major holiday periods that the rental return can skyrocket up to four or five times that of off-peak rental. Some bach owners compromise by ‘booking’ their own holidays and then opening it up to renters in the remaining periods.
You also need to consider furnishing your holiday home to meet the requirements of renters, which can be costly! It’s important that your home is presented beautifully. Old furniture and bedding and inadequate kitchen supplies can decrease the appeal (and therefore the income) of your property.
If you’re really keen about maximising your bach’s rental income then choosing the right location is key. Locations with year-round appeal, such as Queenstown or Taupo, are great. Spots a short drive from metro areas, such as Rodney, the Coromandel or the Wairarapa are ideal, or alternatively you can opt for a cheaper area with strong seasonal appeal, like Ohakune or Gisborne.
So will your holiday home pay off?
Make a smart purchase and chances are your investment will pay dividends in the long run, but like with any property purchase long-term gains are something you can’t rely on.
Another thing to take into account is that, even if the property is not officially a ‘rental property’ there can be increased insurance costs if the home is let on an occasional basis. There could also be tax implications on rental income which are dependant on various factors for which there are clear guidelines available on-line on the IRD website. Tax deduction opportunities were tightened up in 2015 however relevant costs remain deductible against income. As at the time of writing, if you earned less than $4,000 rental per year, your rental does not have to be declared. We would recommend consulting with an appropriately qualified accountant to ensure your tax position is well understood before you commit to your purchase, including any capital gains tax implications.
A holiday home is only a sound investment if you; a) find real value in the joy of having a consistent family holiday space, or b) if you’re exceptionally dedicated to running it as a well-oiled rental operation.
If you want some advice about how you can best make holiday home ownership work for you, we have plenty of tips and advice to share. Simply get in touch.