HOLIDAYS are a time of rest and relaxation and, for some with a real estate brain, a chance to think about making some money.
You may consider buying a holiday home near your favourite spot, an apartment in a resort complex, or turning an existing holiday home into a rental money-spinner.
It’s tempting while having fun in the sun, but it’s wise to rip off those rose-coloured holiday glasses and look at the property from a financial perspective, because there are some traps and issues that can come back and bite you.
Any property is going to cost you money, so understand how much stamp duty, land tax and other holding costs you are likely to pay.
And will you want to keep visiting the same place every holiday, or does the variety of Australia’s and the world’s destinations appeal more?
Apartments in resort complexes can come with high management costs that erode your income, not to mention a bigger chance of boom and bust periods that are not for the faint-hearted.
A growing trend is for people to buy property in their self-managed superannuation fund, but this is a no-no for holiday homes.
Strict rules around self-managed super prevent property owners from gaining any personal benefit from their fund assets until retirement, and there are nasty tax penalties for breaking the rules.
If turning an existing holiday home into a rental earner, you will have to pay tax on the income and deal with risks of damage, theft and injury.
Landlord insurer Terri Scheer Insurance says even the most careful holidaymakers can take a more casual approach to caring for a rental property when in holiday mode.
“Risks may include malicious and accidental damage, theft and legal liability issues if a holidaymaker injures themselves at the property. Such events could also lead to a loss of rental income while damages are under repair,” says Terri Scheer Insurance executive manager Carolyn Majda.
She says landlords should inspect holiday homes regularly to check lights, appliances and smoke detectors are in good working order, and a detailed condition report – with photos and videos of the property and its contents – can help with potential insurance claims later.
Anthony Keane is editor of Your Money.