At first glance, investing in Australia’s most popular holiday spots might seem like the wisest way to invest in property. Making an emotional decision can be dangerous, though. While you may love the idea of having a house for rent in popular Byron Bay or Noosa, for example, would it be wiser to invest in a less glamorous suburb? Should you invest in a house or a unit?

The top 10 trap

Sydney, Melbourne and Brisbane are at the top of most favourite holiday destination lists, but why? They are large urban centres and if a list is comprised of the most popular tourist destinations by numbers, they will obviously be at the top.

If you’re looking for a holiday spot to invest in, don’t rule out the top 10, but dig a little deeper and you may find a better investment closer to the bottom of the list. When finder.com.au conducted a survey of the top holiday destinations and looked at the potential return on investment (ROI) in each of them, they came to some interesting conclusions. For example, while Sydney topped the list of Australian holiday destinations, the price of real estate is so high, buying three houses in Hobart for the same amount as a home in Bondi might make better sense.

Holiday investment ROI: Units

According to finder.com.au’s data, these are the top five holiday destinations for investing in units:

Port Douglas yields a 7.68 per cent ROI.
Surfer’s Paradise yields 6.94 per cent.
Brisbane gives you a return of 6.63 per cent.
Adelaide yields 6.22 per cent.
Sydney ties with Adelaide at 6.22 percent.
Of course, these are averages. Have a look at apartment prices in each of these locations and jot down some prices and their location in relation to the most popular tourist areas. Then have a look on Stayz to find out what holidaymakers are willing to pay for a unit. For example, a quick look at Port Douglas reveals that apartments start at under $100,000 and nightly rentals start at $50 per night.

Holiday investment ROI: Houses

If you’re looking for a house, don’t assume the same ROI will apply. The top five holiday destinations for houses were:

Hobart, with yields of 4.75 per cent.
Byron Bay homes yield 4.70 per cent.
Adelaide houses give an ROI of 4.57 per cent.
Perth comes in at 4.28 per cent.
Cairns homes yield 4.17 per cent.
Across the board, apartments seem to fetch higher yields than homes. One reason for this is probably cost. Holidaymakers want all the comforts of home, but don’t want to pay a premium for it. An apartment that can accommodate four in Byron Bay can fetch $150 to $240 per night. Step up to a house and you’ll be lucky to find anything under $300 per night for a three-bedroom home.

Other factors to consider

A holiday investment is a relatively long-term investment. The only numbers you can count on to stay constant are things such as your mortgage, insurance and other ongoing payments. Your income is going to be a little harder to calculate. Before you jump in, ask yourself:

How many weeks per year can we reasonably expect to rent our property?
How much do we need to spend on advertising?
Is this a growth area for tourism?
How much is property management going to cost?
What will the property cost to maintain?
One reason why homes in Byron Bay have high yields is because people visit the region throughout the year. If you live in the Sydney area, though, you will probably have to rely on a property manager to look after your investment in Byron Bay. Would a location closer to home be a better investment for you?

Yes, you want to choose a popular holiday spot to invest in, but it doesn’t necessarily have to be one of Australia’s most popular holiday destinations. Explore your options and choose a spot that offers a decent yield and isn’t too far from your home. Then decide if it’s a spot you’d enjoy visiting. You will have a property there, after all, so you and your family will want to enjoy it, too.

This article was originally published by Rob Schneider via domain.com.au

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