Buying a Holiday House: Holiday Let vs Buy-to-Let

It is incredibly enticing to escape to a cosy beachside retreat on weekends or stay in a charming mountain cabin during the holidays. Owning a holiday house is a dream for many Australians; it can also be a savvy investment strategy. However, deciding whether to use your vacation home as a holiday let or a buy-to-let property requires careful consideration. Let’s explore the differences between these options and help you determine which might be right for you.

So, What’s the Difference Between Holiday Let & Buy-to-Let in Australia?

A holiday let refers to renting out your property for a few days to a few weeks, typically to tourists. Holiday lets are often listed on platforms like Airbnb or Stayz, and they can generate higher rental income during peak seasons.

On the other hand, buy-to-let involves renting out your property to tenants on a long-term basis. This means securing a lease agreement for several months or even years. Buy-to-let properties provide a more stable and predictable rental income, but the rental rates may be lower than holiday lets. These buy-to-let homes can be anywhere, but they can be more advantageous in a holiday spot.

Should You Buy a Holiday House?

When buying a holiday house, you’re essentially purchasing a second property, and home renovations might be necessary to maximize its rental potential.. It’s a huge financial commitment; you may need to sit down and understand your motivations and goals before going through with it. Are you looking for a personal retreat for you and your family, a source of extra income, or a combination of both? 

Consider the following factors before deciding to buy a holiday house:

• Personal Use: If you plan to use the property frequently, a short-term holiday rental might be more suitable as it allows you to block out dates for personal use.
• Rental Income: How much additional income do you need, and when do you need it? Determine whether you prefer the potentially higher but seasonal income from holiday lets or the steady, long-term income from buy-to-let properties.

Location: It’s no secret that the property’s location impacts its rental potential. Coastal areas and tourist hotspots are ideal for holiday lets, while suburban areas near vacation spots might be better suited for buy-to-let investments.

Holiday Let vs Buy-to-Let: A Rundown of Pros & Cons

To help you decide, here’s a quick rundown of the pros and cons of both options:

The upsides of investing in a holiday let.

• More control over property: You can use your holiday home for personal use; simply block out available schedules for you, your friends & family. Plus, since it’s a short-term rental, you won’t be tied to delinquent tenants who don’t pay rent on time. 
• Higher revenue: You can adjust prices based on seasonality & special events to take advantage of demand peaking, which isn’t feasible with long-term leases. 
• Less wear and tear: Short-term rentals like holiday lets require more regular maintenance, as the properties are cleaned after every check-out and visually inspected for any issues needing repair before taking in new tenants. With that practice, you can keep your holiday house rental in a better condition for a prolonged period.
• Strong tourism industry: With over a million foreign visitors each month, Australia’s tourism industry is thriving. That’s not to mention the many Australians going on domestic trips. Overall, the sector contributes substantially to the economy, and owning holiday home rentals in attractive, profitable locations like Hobart allows you to take a share of that pie.

The downsides of holiday letting.

While holiday letting offers many advantages, it also comes with risks. Returns can fluctuate seasonally, and not all property types & locations are suitable for this type of rental. Also, you may have to consider the higher costs associated with maintenance, cleaning & furnishing. However, with effective cost management, the overall annual returns for short-term rentals can be much higher than those for long-term rentals. 

The pros of buy-to-let properties.

• Financial security: Long-term rentals provide stability and security for property investors. With fixed-term leases, you can count on a steady income without worrying about off-season fluctuations that may affect your rental returns.
• Lower utility payments & operational costs: Tenants in long-term rentals like buy-to-let properties typically cover utility payments, reducing your expenses as the landlord. Additionally, long-term rental properties usually do not require frequent furnishing or advertising, further minimising your operational costs.
• Simpler property management: Managing long-term rentals is less complex, as it involves fewer tasks than short-term rentals. You don’t have to deal with constant guest check-ins and check-outs. Overall, you’ll have less interaction with your tenants.

The cons of long-term rentals.

Long-term tenants of buy-to-let homes typically provide a lower monthly rental income than short-term rentals. That can affect your overall investment returns. You also face the risk of unreliable tenants, late payments and property damage. Moreover, long-term leases may lock you into a fixed rental rate that does not adjust to market changes or increased property values.

How Deltos Finance Can Help

As mentioned, buying a holiday house is essentially purchasing a second property, and it’s a huge financial commitment. We hope this blog has helped shape your decision, and if you have more questions and concerns, our team is here to help.
At Deltos Finance, our expert mortgage brokers in Hobart are ready to help you explore your options. We help homeowners leverage their equity and find the best financing options for purchasing a second property for personal use, investment or both. With one of the highest home loan approval rates in Australia, we’re your trusted partner in turning your holiday home dream in Hobart into reality. Contact us today to explore how we can help you secure the perfect loan.