Why you shouldn’t justify a holiday house as an ‘investment’

It’s a typical scenario. You’re enjoying your holidays and wishing you could have your own slice of paradise.

It’s the time of the year when many of us are tempted to by a holiday home and justify it saying it would make a great investment.

Research by one of Australia’s biggest comparison websites finder.com.au the biggest tourist areas of Australia may be the worst locations to buy property.

Why?

The research found that the areas with the highest international visitor numbers did not always return the best yields or capital growth.

For instance, Sydney city recorded over 2.8 million international visitors in 2013, the highest number of visitors than any other area of Australia.

However, with a median house price of $1.8 million, rental yield was the lowest of the list of top five most visited areas in each state, at 2.90 percent.

For New South Wales, Sydney’s CBD had the lowest house rental yield, while the best house rental yield for the state only managed fourth most-visited destination  – Hunter region (Cessnock) at 6.15 percent with a median house price of $260,000.

The second-highest area of international visitors was Melbourne’s CBD, with over 1.8 million in 2013.

This was also the lowest house rental yield for the top five most visited areas of Victoria, with a median house price of $929,500, and rental yield sitting at just 3.6 percent.

Michelle Hutchison, Money Expert at finder.com.au, said property investors must look beyond tourism numbers when researching the property market.

“It was interesting to see the differences between these tourism hot spots from an investment property perspective, and how much the returns can vary between locations and the type of property.

“Capital growth figures also varied across the states, as well as unit rental yields, which shows that you really need to do your homework by looking at the best likely returns on your investment for different property types.

Alice Springs in the Northern Territory had the highest rental yield for houses at 7.49 percent on the list, with a median house price of $404,500. On the flip side, Alice Springs also held the lowest rental yield for units at just 2.66 percent.

The highest three-year capital growth for houses was Adelaide’s CBD, South Australia, at 31.39 percent with a median house price of $536,500.

Conversely, Wilderness West (Strahan) in Tasmania had the lowest three-year capital growth for houses at -30.64 percent with a median house price of $204,500.

“The research shows that there’s a big difference between the costs and projected returns for the top tourist areas of Australia.

“The most important thing to remember when looking for an investment property in a holiday destination is that you have to look beyond the tourism numbers. Just because a lot of people visit the area, it doesn’t mean it’s going to give you the best return.”

NSW:

 Victoria:

 Western Australia:

South Australia:

Queensland:

 Tasmania:

  Northern Territory: