Is a holiday home worth it?
UNLESS you strike it lucky, you're probably not going to make a whole lot of money out of a holiday house, writes real estate expert Andrew Winter.
How many time have you been enjoying a wonderful holiday, with the family or your partner where the sun is shining, or the snow is falling, the meals are scrumptious, the service attentive, the ocean is warm, the wine is crisp, and you just wished where you lived offered this dreamy lifestyle.
Then you have the inspirational idea. How could you enjoy this way of life more often and buy a holiday home here? You tell yourself this will not only allow continued visits, but it will surely be a popular and sought-after holiday rental so it will provide income and on top of this grow in capital value and be a great investment. This really is living the dream. Or is it?
In my experience, more house buying faux pas are made by this house buying group than any other. Now I have no research to back up my theory, because those guilty of this error never want to admit to it. Would you proudly declare to all your mates back home in the suburbs you have just bought an overpriced holiday home, where the market growth is minimal, capital gain hopes are at their best described as ‘a little sluggish' and short term resale chances could be close to nil. And as for that high demand holiday rental income, well 10 weeks a year is hardly going to cover the extra furnishings needed and heavy duty locks to hide your personal items in that special cupboard, well away from those demanding other holiday makers, let alone cover any mortgage you may have.
The principal reason for this buying mistake is simple. Although you know the area in holiday terms - the location of the best bars, where the patrolled beaches are - do you really understand the possibly complex housing market, its pros and cons, demographics and hopes for the long term future? No, I didn't think so.
So does that mean holiday home purchases should be avoided at all costs? No. If you get it right, it can be a great investment vehicle with added bonuses over your classic dull suburban buy-to-let. Before we analyse this any further, let me clarify. I am only happy to comment on Australian home grown holiday homes - the overseas market is vastly complex, the detailed research is not always possible and the risks are considerably higher, unless you are very well informed, so let's stick with home territory.
Holiday home facts:
1. Holiday homes are not possible through self-managed super funds as you are not allowed to have the benefit of using a dwelling linked to this form of investment. So why would you bother if you never got a chance to stay there?
2. Buying a holiday home so that you can stay there can be great, if you have the cash to buy it. Any holiday rental income will be a return on your money and providing you hold the property long term some capital growth is likely.
3. Buying a holiday home with a large mortgage is much higher business risk. You - and many others - may love the holiday destination but competition to secure holiday makers’ money may mean the occupancy is lower than you expect and you have to negotiate to secure a rental.
4. Running costs are higher and you need the home fully furnished, right down to knives and forks and all these items need maintenance and regular replacement to maintain the standard. Management fees are higher - they can be double a conventional let than holiday let fees - and there is more advertising/regular online promotion, laundry costs etc.
5.Check out the main holiday let websites for a real guide, www.stayz.com.au and www.realestate.com.au has a holiday home listing section too. These will help you calculate what your purchase could generate. Check with holiday agents locally too for guides on the all important ‘occupancy rates'’ Remember, a great weekly income is only great if you get it more four weeks a year.
6. Ideally, buy your holiday home with a 25 per cent deposit or more to maximise it working.
Posted by Andrew Winter - New Limited Newspapers on 12th September, 2012 | Comments | Trackbacks
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