Renting a Holiday Home

I’m looking to buy an investment property. Is a holiday h... When choosing between buying a standard residential property or a holiday home, you need to decide whether you're...
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Renting a Holiday Home

The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.

I’m looking to buy an investment property. Is a holiday home a good choice?

When choosing between buying a standard residential property or a holiday home, you need to decide whether you're making a strictly financial investment, or a lifestyle choice. Ask yourself the following:
  • Will the investment property (bach) be used as a holiday home for your family with short term rentals, or will it be rented out to others long term?
     
  • Are you able to cover a large portion of the running costs out of your own funds, if you are unable to get rental income for much of the year?
     
  • What long or short-term financial goals do you have for the property?
     
  • Will the investment property offer you any New Zealand tax benefits?
 
  • Are you confident of your financial position if there is a downturn in the New Zealand holiday rental or sales market?
If you're investing in property for the first time, consider whether you'll require constant rental income to cover mortgage repayments.  If you do, a long-term residential property investment is probably more suitable for you.

What should I look out for when renting a bach or holiday home on the internet?

Prospective holidaymakers should be careful when renting a bach online, as rental listings promoted on the internet can be a popular target for scammers.
Scammers can sometimes go to extraordinary lengths to trick unsuspecting people into giving up personal details or making payments. They may pose as owners or real estate agents and use the actual property address and photographs, often copied from real estate websites, in an effort to convince you they are genuine.
Here are some online renting guidelines to follow to help you avoid being scammed:   
  • Watch out for obvious spelling mistakes, grammatical errors or pixilated photographs – scammers tend to operate from overseas and English may not be their first language.
     
  • If you don’t live in New Zealand, ask someone you trust to make local enquiries.  There are reputable websites out there.  In general, if a bach renting offer looks too good to be true, it probably is.
     
  • Don’t rely on referrals or recommendations of others, unless you know the source of the referral or recommendation personally.
 
  • Never pay funds via a bank transfer unless you are sure who the recipient is. Avoid using non-bank payment systems such as Western Union, which scammers are well known to use.  It could be very difficult to ever get your money back from these networks if there are issues.
     
  • If the owner or agent for the bach lives overseas, this is a warning sign that it could be a scam. Most New Zealand bach owners live in New Zealand.  Ask for local telephone numbers and addresses, and have these verified.
 
  • Search online for reviews of the owner or agent offering the holiday home for rent.  The experiences of others can be very useful indicators.
     
  • Keep all written correspondence about the holiday home rental, including payment details and a copy of the listing itself.
     
  • Watch out for holiday homes being advertised at conspicuously cheap rental prices (unless at the last minute). This is a sure sign that the listing is a scam.
     
  • Never send money in order to be posted keys to a property. You should always be able to pick up the keys personally, or retrieve them from an agent.  Many owners are happy to accept just a deposit up front when you book the accommodation, and to receive the remainder when the keys are exchanged.

I want to rent a bach for the school holidays. Should I rent through a real estate agent?

Some holiday home owners rent their holiday homes out themselves.  Others rent their holiday homes out via agents.  As a renter, your interests and personal details are better protected when you rent your holiday home via a licensed real estate agent.  You also benefit from more choice of homes, because the real estate agents have exclusive listings that are not available through any other market channel.
Whether you rent a bach or holiday home directly from the property owner or through a licensed agent, it's advisable to search for online reviews of the property. Make sure that the photos shown are legitimate and represent the current property conditions. If you are able to, you should physically inspect the property and ask as many questions as possible before signing any holiday home rental agreement.
All details concerning the holiday home rental should be put in writing.
 

What should I look for when buying a holiday home for investment?

Location is the most important consideration for holiday home investments. The property must be in the right area to attract regular rental opportunities, and to provide the potential for strong capital growth. Things to consider include: 
  • Surrounding infrastructure and amenities in your chosen location.
     
  • Future plans of local municipalities and / or developers for the area.
     
  • Tourist appeal, from kiwis and from overseas visitors. Will the property attract interest all year round, or only during peak seasons?
     
  • Accessibility of your property to major towns and / or airports.
     
  • How attractive is the property itself, and the street it’s sitting on?
     
  • Does the property enjoy good natural light, a quiet environment, and a good amount of accommodation space?
     
  • Will the property appeal to a broad range of tenants such as couples, singles and families?  Is the property near to restaurants and tourist attractions?
     
  • How is the property likely to hold its value? In a financial downturn, free-standing property tends to drop less in price than units or apartments. 
It's often wise to buy in an area that you personally enjoy taking holidays in.  That way, if rental income is difficult to get for any reason, of there is a downturn, you still have holiday accommodation that you can use personally and enjoy.

Are there any hidden costs associated with buying a holiday home?

Make sure you don’t underestimate the ongoing expenses and outgoings involved with the ownership of an investment property. These costs can include:
  • Body corporate levies and costs.
     
  • Letting and property management fees.
     
  • Insurance costs.
     
  • Caretaker, cleaning and maintenance costs.
     
  • Electricity, gas, water and council rates.
 
Consistent advertising to find tenants to rent the property, regular property maintenance, furniture replacement, and linen hire are other expenses to consider.
Expenses you may choose to incur in order to make the property more appealing to potential renters could include the provision of high quality furnishings, Sky TV, modern kitchens and appliances, air conditioning or heating units, barbeques and outdoor dining areas, and even broadband internet connections.
Holiday homes can sit vacant for long periods.  As an investor, you should ensure that you have funds in reserve to cover mortgage repayments and fixed costs

What services can I expect when renting a holiday home?

Services provided with the bach rental will differ from property to property. If there is anything that you are unsure of, contact the holiday home owner or agent before signing any written agreement. Things you may want to clarify include:
  • Does the owner have the right to enter the property while you are living there? If so under what circumstances?
     
  • Is the holiday home accommodation rated in accordance with any classification system (e.g. Tourism New Zealand’s Qualmark)?
     
  • Is the holiday home accommodation serviced, and if so how often and when?
     
  • Will the electricity be on when you arrive at the property? Is it included in the rental price, or does it operate on a coin meter basis or similar?
     
  • Is there anything in the property that cannot be used or are there any facilities that are shared with other properties / tenants?
     
  • Is the holiday home accommodation fully furnished including cutlery, bedding, and kitchen equipment?
     
  • How close is the bach or holiday home to local points of interest and transport?
     
  • If there are any disputes, how will these be settled?  Does any formal dispute resolution system exist?
     
  • Will there be manuals and instructions for using appliances available in the property when you arrive?
     
  • Who do you call in the event of a problem or an emergency relating to the property?
 

What is a timeshare property investment?

When you invest in a timeshare property, you purchase the rights to use a unit in that property, often a hotel or resort facility, for a set period of time each year.  You pay a set administration fee each year for this service. You can usually trade these rights with other timeshare owners, enabling you to purchase the rights to holiday at a different time of year, or to purchase accommodation in a different location or resort.
Note that you never actually own the property, just rights to use the facilities.  New Zealand timeshare sales are covered by law through the Securities Act. This requires the promoter of the timeshare to register a prospectus and distribute an investment statement to potential purchasers.  You are paying up front for the rights to use the property for many years to come, so it's important that the company which owns the actual property is financially stable.
Timeshare resorts and exchanges associated with the New Zealand Holiday Ownership Council will need to abide by that body’s code of ethics.

Is buying into a timeshare property a good investment?

Buying a timeshare property can be a low-cost way to initially invest in a holiday home, but there are often hidden costs that are not always immediately apparent. If you’re looking into a timeshare investment, make sure to consider the following:
  • There may be extra costs other than those associated with purchasing your timeshare rights. These might include hidden fees, levies that rise over time, and future obligations to fund repairs and maintenance. Make sure you understand all the costs involved before signing anything.
     
  • Do not expect to make money reselling your timeshare rights. While it is possible these will increase in value in some instances, it is not a common occurrence.  Many owners lose up to half of their investment when reselling.
 
  • Some timeshare purchasers end up even worse off, because the value of the property they have invested in depreciates drastically over time. Make sure you understand how long your investment will last, along with the obligations property owners have to reinvest in the property.
 
  • In an economic downturn, demand for your timeshare period may decrease, particularly outside of peak holiday weeks. As money gets tight, people tend to take less holidays, not more.
     
  • While timeshare sales people may try to sell you on the benefits of being able to swap your timeshare rights for those in different properties, make sure you investigate how active the exchange market really is. If the swapping process is difficult, inconvenient, or costly, or there are not enough participants willing to swap, then the promised benefits may never materialise.
     
  • Make sure to investigate the quality of any properties you wish to swap your rights to, and make sure they are of comparable quality and desirability to the one you are investing in.
A well run timeshare scheme can provide a low cost and flexible way for you to access a holiday home, especially in prime tourist locations.  If you're looking for an investment that offers a positive return or capital gains, consider other options. 

Should I lease out my holiday home on a short-term or long-term lease?

Some of the usual rules governing tenancies don't apply for short fixed-term tenancies of less than 90 days duration.  You don't need to worry about the rules concerning fair market rent, tenant eviction notice periods, or rent increases following substantial improvements to the property.
Rental returns for short term tenancies will normally be higher than for long term leases, especially if the property is fully furnished. But as holiday seasons represent only part of the calendar year, this higher short-term rental yield must be balanced against the security of income that a long term lease situation provides.
You should consider the tax treatment of your holiday home by the Inland Revenue Department (IRD). While all rental income is taxable and needs to be declared on your tax return, your ability to deduct expenses related to the holiday home (such as interest, insurance, depreciation and council rates) may depend on how often, and for how long, the property is rented out.
In general, you will be allowed a deduction if you can demonstrate that these expenses are related to the earning of rental income. The amount of time that the property is rented out may impact on this assessment. If you only rent the house out for 10 weeks per year, you may only be able to claim the deduction at a rate of 10/52 - i.e. pro-rata, based on the weeks that rental income was generated. 
If the IRD believes that your expenses are private in nature, and are not a legitimate expense that led to the generation of rental income, they will likely be denied. Visit the IRD website for more information, or contact a First National Real Estate agent