Buying an investment property to let as a holiday unit

We’ve put together the following information to help you decide if a holiday unit is right for you.

Weighing up the costs

To find out if a holiday unit is a viable investment for you, you need to be aware of all the upfront and ongoing costs involved.

Before you buy:

• transfer duty (previously known as stamp duty)
• professional valuation
• property inspections
• real estate agent fees
• legal fees
• conveyancing costs.

When you buy:

• bank or mortgage fees and insurance
• home and contents insurance
• moving costs and utility connections
• smoke alarms and electrical safety switches.

After you buy:

• council rates
• water consumption and service fees
• body corporate fees
• home and contents insurance
• ongoing maintenance and cleaning
• upgrades to furniture and fittings (you should budget for upgrades every 5 years)
• any building or brand-specific requirements that apply in some holiday complexes (e.g. regular external window cleaning, maintaining certain standards in furnishings and fittings, using particular cleaners, and maintaining internet connectivity and pay television).

Weighing up the income

You should be prepared for fluctuations in occupancy and rental income.

If you want to use the unit for your own holidays during peak holiday periods, this will substantially reduce your overall income from the property.   You should factor this deduction into any ‘average rental return’ guide you receive.

If you think you may switch to renting to long term tenants or moving into the property yourself if money gets tight and holiday letting doesn’t work out as you hope, you should check this is an option before you buy, because some complexes do not allow long-term residents.

You should also check what effect switching to long-term tenants or owner occupation will have on any fees and charges. Depending how contracts are formed with third parties that service the complex, you may still be required to meet costs for brand-specific expenses such as pay television, internet connectivity and external window cleaning.

We recommend you get advice from an independent solicitor and a financial planner before proceeding with any purchase.

Choosing an agent

Many large apartment buildings have an on-site agent who can manage your holiday let apartment for you, for a fee.

You do not have to use the on-site agent though. You may choose to use a different property agent, or to manage the property yourself.

When choosing your agent, you should:

• check they are licensed using our free online search
• read their appointment form carefully
• get a list of the services they will perform for you
• consider their commissions, fees and charges
• ask about any third party supplier fees and charges the agent will pass on to you. Examples of third party suppliers include booking agents, cleaners, gardeners, laundries, florists, pay television providers, and internet and telephone companies.

You should also ask about their procedures for:

• carrying out maintenance or repairs (including quotes and receipts)
• handling complaints
• ending a tenancy, including evictions (find out how long rent can go unpaid).

Management agreements

You must formally appoint an agent using a property agent appointment form before they can provide any services to you. The appointment form outlines your rights and obligations and those of the agent.

Appointments to Act must include:

• any limitations or conditions you place on the agent
• the services the agent will provide
• the amount of commission, fees and expenses you will pay for those services
• any benefit or reward the agent may receive in the process of providing services in addition to the commission and fees you pay.

You can terminate a management agreement with 30 days' written notice. If you wish to terminate an agreement with less than 30 days' notice, you will need the agent’s consent.

Fees and commissions

Property management commissions are negotiable. Do your research and negotiate to get the best deal.

Your agent will send you monthly statements for your unit. In addition to any rental income, it should clearly show all fees and commissions you have been charged.

Where a third party has done work on your unit, your monthly statement should clearly show the amount charged by the third party (e.g. the fee charged by a plumber for plumbing work) and any fee the agent has charged you for managing the process.

It is important you check your statements in detail, not just the net figure. You should always know what you’re paying for and why.

If you are concerned any fees or commissions charged are not in line with your appointment to act, you should seek an explanation and/or refund from your agent.

Beware of property marketeers

In the past there have been unscrupulous property spruikers going to great lengths to sell investment units in top tourism spots at inflated prices. In some instances, they have even flown people to the area from interstate to view the properties they are selling.

Do your own research into the market so you have an understanding of local property values, and never use financial planners or solicitors referred to you by a property spruiker.