Five ways to turn holiday home investment duds into diamonds

January 21, 2021 BY

Australians invariably get caught up in the holiday romance of buying a ‘weekender’ and some will act on impulse while on vacation.

With summer holidays in full swing, the director of a national quantity surveying firm says some holiday home buyers are overlooking five key strategies that can turn their costly lifestyle investment into a money-making asset.

Managing director of MCG Quantity Surveyors, Mike Mortlock, said anyone whose impulse bought a holiday home over Christmas must get serious about making it profitable.

“Australians invariably get caught up in the holiday romance of buying a ‘weekender’ and some will act on impulse while on vacation.

“Often investors reason that by renting to holidaymakers when they aren’t using it, the asset’s maintenance and holding costs will be covered, but that’s rarely the case.”

Mr Mortlock said instead, holiday home buyers must seek maximum rental income and depreciation benefits to make the investment viable.

“Most are buying emotionally and discover that higher-than-normal vacancies make their investment returns marginal at best.

“But smart investors know there are moves that can turn the numbers around.”

Mr Mortlock said holiday home property managers have five key rent boosters that also deliver great depreciation benefits.

“There are a few things that boost your home’s appeal with holiday makers which not only maximise rental income, but also deliver excellent tax depreciation benefits.

“This means, come the end of the financial year, you’ll have more upside in your tax return thanks to your holiday home.”

1. Climate control

“Ensuring your holiday home is airconditioned is essential for attracting holiday makers.

“Vacationers will spend plenty of time relaxing at your short-stay, and they’ll want their comfort levels to be spot on.”

Mr Mortlock said guaranteeing your home has split system air-conditioning and insulation not only helped improve the holiday experience for renters, but delivered tax benefits too.

“The deductions available when you install a new split system represent 20 per cent of the cost of the asset within the first full year of claim, so, spending $3,500 on a split system will equate to $700 worth of deductions in year one.”

2. Pet appeal

“Holiday homes that are pet friendly command a premium, as pet owners look to take their ‘fur-babies’ on holiday which saves on the cost and stress of kennelling.

“But improvements that help create pet-friendly rentals also provide depreciation benefits.

“Think boundary fencing, hardwood floors, pet proof landscaping; even items such as an external doghouse can be depreciated.”

3. Outdoor entertaining

“Holidays are built for family barbeques and lounging in a shady spot.

“The addition of a roofed outdoor relaxation and entertainment area will drive holiday makers to your home.

“They are also filled with depreciation opportunities such as ceiling fans, built in barbeques and benchtops.”

Mr Mortlock provided an example where a relatively modest spend of around $4,000 would both elevate your property’s rental earning potential, and deliver more than $1,000 in tax deductions in the year after installation:

4. Pools

“Even when near a beachside holiday spot, there’s no denying the appeal of a pool when holidaying.

“If you’ve been fortunate to buy a home with a pool, don’t forget to claim depreciation benefits on the fencing and filtration system.”

5. WiFi and entertainment

“Providing unlimited WiFi has become pretty much mandatory for holiday homes.

“Access to streaming services, scrolling through websites on local hotspots or checking in on updated weather alerts and surf conditions make web access a must.

“Simple elements such as supplying a television can improve your tax deductions.

“For example, televisions have an eight-year effective life, so under the diminishing value method, a $2,000 TV will provide $500 in deductions in the first full year of claim.

“While depreciation rules for computer equipment are currently found within the commercial sections of the tax legislation, it’s likely that computer equipment will become a residential plant and equipment item in time.

“Either way, routers and range extenders will always attract deductions.”

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