My Property Preview

Issue 75 29 January 2010 It’s tourist season, and for some investors, it’s a tempting to cash in on our visitors. But is a short-term rental any more viable than a long-term one? We take a look.

One of the key attractions for buying an investment property is lifestyle – you use your property as an investment and stay in it for free. Th is is one of the most appealing things about buying a holiday home near the beach. But every week you are using it you miss out on income. A long-term rental does not offer these lifestyle benefi ts but does give long-term security.

Where it’s at

Holiday-makers will want to stay in a place that is within walking distance of or a quick drive to attractions, cafes and shops. Though this proximity to key services is still a big plus, long-term renters aren’t so demanding. As a result, you may not have to spend as much if you’re considering a long-term rental property.

Extra, extra

To each his ownLong-term rentals are generally offered unfurnished and with few extras, while self-contained short-term rental properties are usually fully furnished. If you have a short-term rental, you’ll need to budget for ongoing maintenance and repairs (and sometimes replacement) of items such as the fridge, microwave and dishwasher. However, these costs are tax deductable.

Get into gear

Short- and long-term rentals can be positively or negatively geared, depending on your circumstances.  The interest and related expenses you incur (such as repairs and maintenance) are tax deductible. Negative gearing means your loan repayments, fees and other costs exceed your rental income – the net loss can be off set at tax time against other income. Positive gearing occurs when the annual rental income received is higher than the annual loan repayments and costs – you earn extra income, but this is taxable.

Who’s in charge?

No matter what your preferred investment type – long or short term – you will need a property manager to manage your investment. Many apartment buildings and townhouse villages have their own onsite management. Or you can have your property managed by an external agent.

Appreciate depreciation

Ensure your manager is experienced and understands the local rental market. If you own a holiday rental, you’ll get high depreciation allowances as some short-stay accommodation qualifi es for four per cent depreciation for 25 years as opposed to the standard 2.5 per cent for 40 years that comes with longer term rentals. But this applies only if your apartment meets the criteria.

To each his own

If you’re a fi rst-time investor who requires consistent returns and good capital growth, it’s probably best to stay away from investing in holiday accommodation and consider long term rentals. If you’re an experienced investor looking for diversifi cation in your portfolio and place great importance on lifestyle, holiday accommodation is worth considering.