Sea view or hard cash – which is best?

When deciding what to invest in next, it’s essential to examine your priorities. And with the great Australian holiday home making a comeback, Domain looks at the pros and cons of these great escapes as well as other investment properties.

The holiday home: pros

• You’ve got your own personal getaway: In today’s always-on world, we can emphasise enough the psychological benefit of having a place to escape. A holiday home gives you and your family a place to relax and create memories that you will cherish forever.
• You can rent to holidaymakers: You can offset the costs of owning the property by renting out your vacant holiday home to friends and family or on the short-term rental market. Commercial rentals have become easier to manage in recent years, due to the advent of listing websites such as Stayz.
• Potentially great value – if you buy well: Paul Nugent of residential property investment company Wakelin says it’s a good time to buy a holiday home, as there’s been little movement in the holiday real estate market since 2007. “As prices in the cities have continued to increase, those holiday houses in established, well-regarded beachside locations offer very good value,” says Nugent. He recommends buying within two hours’ drive of a capital city, so it’s easier for you (and potential buyers) to make quick getaways. Google Maps is your best friend if you want to assess drive times. Once you target your ideal beachside haven, you can check out homes for sale using Domain listings, as well as historical property performance using the Domain Group’s property reports and tools like PriceFinder.

The holiday home: cons

• Less capital growth: With a holiday home, you can go for many years without seeing capital growth due to the nature of the market, adds Nugent. A holiday home could be difficult to offload in tough times.
• Commercial rentals can be a major hassle: Renting out your holiday home comes with a pile of headaches. You’ll either need to handle rentals yourself or hire an agent. You’ll probably need to hire a professional cleaner, and the increased wear and tear on the property could blow out your budget. It’s also likely that most people will want to rent your house at peak season – just when you’re most likely to want to use it, too.

The income property: pro

• Generally a safer financial bet: There are no guarantees in property, but purchasing a dedicated investment property is more likely to provide you with a reliable return in the form of long-term capital growth, regular income from rental returns or both.

The income property: con

• Cashflow properties can be risky: Properties that will pay you a weekly or monthly income are often located in smaller regional towns with rental shortages caused by an influx of transient workers. As many investors found out when the mining boom cooled, you could be left with a property that’s difficult to rent or sell.

The choice between a holiday home and an income-generating property comes down to your personal priorities. As Nugent says, a holiday home is the ultimate discretionary purchase. It’s something you buy for lifestyle, not profit. If you’re more interested in the financial return, then an income-generating property may be a better bet. After all, you can always put the gains from your investments into a holiday fund and splash out on a humdinger of a holiday further down the track.