Attwood Marshall Lawyers Property and Commercial Law Associate, Mieke Elzer, gives her guidance to buyers eager to purchase a holiday home.
As property lawyers, we see firsthand how easy it is for people to fall in love with the idea of owning a holiday home. But when it comes to investing in a holiday home, making an emotional decision can have serious financial and practical repercussions. It’s crucial to approach your investment with a clear purpose, a sharp focus on due diligence, and an understanding of the complex legal and financial considerations involved in owning an investment property.
Here’s a guide to help you stay objective, clarify your investment goals, and conduct the necessary legal and financial inquiries before buying a holiday home.
Define your investment purpose before anything else
Knowing whether you’re buying the property primarily for personal enjoyment or as part of a dedicated financial portfolio will shape every aspect of your decision. If rental income and capital gains are your goals, it’s essential to approach the purchase as a business venture.
Questions to help clarify your purpose:
- Will the property primarily serve as a holiday rental or as your own occasional personal retreat?
- Are you focused on high rental yields or long-term gain?
- Do you plan to manage the holiday rentals yourself, or would you prefer a holiday rental company?
As property lawyers, we work in conjunction with your accountant or financial adviser to ensure your investment goals align with the legal obligations and market realities of the property you are proposing to purchase.
Avoid impulsive decisions while on holiday
Making a property purchase while still in holiday mode can lead to rushed decisions. Emotions run high on vacation, where everything seems brighter, less stressful, and more appealing.
It’s essential to assess each property objectively and make decisions from a rational perspective rather than an emotional one. This might mean delaying the final decision until after your holiday or even scheduling a follow-up visit to view the property with a clearer, investment-focused lens once you have had an opportunity to obtain adequate financial and legal advice.
Conduct a thorough market analysis
Even if you’re familiar with the area you are looking to purchase in, it’s essential to research the property market dynamics, rental demand, and historical trends to understand the investment potential of your future holiday home.
Many investors make the mistake of assuming that a desirable vacation spot will always provide consistent returns, but this isn’t always the case. Market factors vary by location, seasonality, and occupancy trends, all of which impact rental income and long-term value.
Key market analysis points:
- Rental Demand and Rates: Research rental yields in the area to ensure they’re competitive with your target income.
- Seasonality Considerations: Some holiday destinations are highly seasonal, affecting the consistency of rental income.
Working with a local property lawyer can be incredibly helpful here, as we have access to valuable local resources and contacts. We often help clients gather this data and analyse whether a property aligns with their financial goals.
Be thorough with financial and legal due diligence
When buying a holiday home, the purchase price is only part of the cost. Stamp duty, land tax, maintenance, rates, property management fees, and insurance can all impact your overall return on investment.
Attwood Marshall Lawyers can help you identify these potential costs and ensure you’re prepared for all financial responsibilities.
Financial costs to consider:
- Land Taxes: Rules and threshold regarding land tax vary widely from State to State, especially for investment properties.
- Insurance: Holiday properties may require specific types of coverage due to location or seasonal risks.
- Management and Maintenance Fees: Especially crucial if you won’t be nearby to handle guest issues or repairs.
- Renovations and Furnishing Costs: Furnished rentals typically yield higher returns but also require an upfront investment.
From a legal perspective, Attwood Marshall Lawyers can assist in reviewing any leases, zoning restrictions, or local ordinances that could impact your ability to rent the property as you intend. Additionally, we will ensure that all the relevant due diligence enquiries are satisfied before you enter an unconditional contract.
Legal matters to consider:
- Pest and Building Inspections
- Asbestos health and financial liability
- Climate risk: Is the property in a flood, bushfire zone, or is it susceptible to coastal erosion? property that may not be insurable in the event of a climate event.
- Smoke alarm and electrical wiring compliance: compliance requirements vary State to State.
- Swimming pool compliance
- Existing contracts relating to the property for example existing holiday letting arrangements that need to be transferred or terminated on settlement.
- Council construction approvals
- Short-term letting rules and regulations from Council, and Body Corporate. Are there Local Environmental Plans or Draft Plans proposed that will constrain short-term letting in the area you are purchasing?
- Finance approvals: It is imperative that you have obtained any necessary finance approvals to complete the purchase prior to entering into an unconditional contract.
- Self-managed super fund requirements: for those considering a purchase by a corporate trustee on behalf of their self-managed super fund, there will be a number of points to consider ensuring directors are complying with their responsibilities under the trust. Further, the stamping requirements of the trust deed vary between States. A failure to establish and stamp the trust or the bare trust at the correct time for the State in which you are purchasing can have very expense consequences for the client.
Not all States are created equal
When purchasing a holiday investment property, it is particularly important that you understand the way in which cooling off periods and critical dates in contracts apply in the state you are purchasing, and what it means to purchase at auction instead of by private treaty.
Each state and territory in Australia have slightly different regulations and procedures that apply when purchasing property. It is important to be aware of the differences, particularly where you have purchased property many times in one state, and are not aware of the nuances in the state you are planning to purchase your holiday home.
Here are some key differences to be aware of:
- Critical dates for conditions: Critical dates in Queensland contracts are time of the essence, which means a failure to satisfy a condition by a due date can mean immediate breach of the contract, bringing with it disastrous financial and legal consequences. New South Wales Contracts tend to require the use of notice to make critical dates time of the essence.
- Off the plan: When it comes to purchasing off the plan, New South Wales has much stronger legislative protection in place to protect purchasers. It is important to understand how these differences might affect you if you are purchasing in Queensland.
- Condition precedents: While it is commonplace for a Queensland contract to be subject to the buyer obtaining satisfactory pest and building reports and approval for adequate finance, many New South Wales solicitors will encourage their clients to wait until they have these items checked off before entering into the contract. This can mean the purchaser ends up spending hundreds of dollars on reports, only to be gazumped by another purchaser who is willing to purchase without requiring these conditions.
- Cooling off periods are commonly used in New South Wales to allow clients to enter into a contract straight away to secure the property while they conduct their due diligence enquiries, but it is better for the purchaser if the contract is instead subject to them competing these tasks. A savvy property lawyer will advocate for their client in this respect.
Build a team for property management and maintenance
If you’re not planning to live near your holiday property, having a local team to manage rentals and maintenance is essential. Managing a holiday rental can be time-consuming, and guests expect quick responses and a high standard of upkeep.
Plan for the long term
One of the most important steps in holiday property investment is planning for long-term ownership and considering potential changes to the market or the property itself. Some investors aim to keep the property for personal use after it has appreciated, while others intend to sell after a certain period.
Either way, it’s essential to assess long-term market trends and consider factors like tourism projections, development plans, and even environmental concerns that might affect the property’s value.
Atwood Marshall Lawyers – helping people secure their dream holiday homes
Investing in a holiday property can be both rewarding and financially advantageous when approached with a clear purpose and proper due diligence.
Attwood Marshall Lawyers is an experienced property law firm that has been assisting clients for over 75 years, to achieve their property investment goals.
If you’re considering purchasing a holiday investment property, you can visit our friendly team for advice at any of our conveniently located offices at Robina, Southport, Coolangatta, Kingscliff, Brisbane, Sydney and Melbourne. Contact us today to discuss your goals.
