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One hazard of taking a holiday at this time of year is coming back owning an extra home.

Who hasn’t surreptitiously checked out the real estate prices at a favourite holiday destination?

Even in the era of Airbnb where you can find a dream holiday home without a lifetime financial commitment, the lure of a shack by the sea or a hideaway in the hinterland can be irresistible as the following stories show.

Lisa Marquette and Jimmy Wright have similar tales to tell. They were both spending weekends away and were captivated by homes that had just gone on the market.

“We were visiting friends,” says Marquette. “The For Sale sign went up.” And that was that. “We did all the things you don’t do, ” she says. “It was emotional.”

For Wright, who also has three investment properties and a unit in Sydney’s Elizabeth Bay, buying the holiday retreat at Great Mackerel Beach (on Pittwater, just north of Sydney) “was a completely emotive purchase. The For Sale sign went up that weekend and I put an offer in. I emailed Philip [Sangster of broker Mortgage Choice] to tell him on the ferry coming back.” Yet neither regrets rushing in.

Marquette says her holiday house – in Walkerville close to Wilsons Promontory – is a “cheap holiday” and they plan to rent it out at other times.

Mike Phillips, a real estate agent at Rye, a popular weekend destination on the Mornington Peninsula, even cites an extreme case of the local plumber who lets out his home and moves into a caravan on the foreshore at Christmas, which is sort of going on holiday while you’re on holiday.

Don’t laugh. The $2000 a week earned helps pay for a trip overseas.

Not surprisingly, interest in a weekender or holiday getaway is at its peak in January.

“We tend to see a pick up in people buying holiday homes as an investment property at the beginning and end of each year,” says Mortgage Choice’s Lauren Booke.

Going up?

One thing that tends to get pushed to the back of the mind is prudence.

“Once an investor begins to use the words ‘it’s a good investment’ as justification for purchasing a property which has benefits for them, they are setting themselves up for not only disappointment but a greatly improved chance of investing failure,” warns leading property adviser Margaret Lomas.

Property prices in coastal areas and the country are notoriously sluggish. They rise only in fits and starts and it can be a long time between drinks from fit to start.

“People go for the capital gains but we don’t get what you get in the city. It’s like the country – prices here don’t move for years,” says Phillips.

According to Lomas a good property investment will be in “up-and-coming suburbs with affordable prices which are attracting families who will settle and contribute to the local area economy.” So unless you want a holiday home in Sunshine or Blacktown, forget it.

“The place we choose to holiday is attractive because it lacks these characteristics – it’s normally in a quiet spot, has little in the way of population growth and often lacks many of those major infrastructure features like arterial roads, hospitals, private schools and community facilities.

“Therefore the capacity of the property in that area to return a good rental yield and grow in the future is limited, and in many cases virtually non-existent,” Lomas says.

Holiday apartments in resorts have performed poorly with “costs often blowing out” and frequently changing operators, according to Lomas.

And whether or not you let out your holiday home, you’ll be hit by capital gains (if there are any) tax when you sell as well as annual land tax.

But there must be some financial benefits, surely?

A getaway can be cheap – for a property, that is – and during holidays might pull in a fortune.

“Everybody said it would be a money pit and cost a fortune,” says Wright who uses Airbnb and almost has to book to stay at his own place.

But in the first full year I made a paper profit of $1500,” he says.

Phillips says he has friends who rent their holiday home out over Christmas for $5000 a week. House values in the area start around $300,000.

Provided you don’t hog the home at peak holiday periods, which unfortunately is probably when you want to use it, rentals can help pay off the second mortgage.

Besides, it may eventually become your home in retirement, in which case it’s the capital gains on the place in the suburbs that you’ll be leaving that matters more.

And yes, there are tax breaks if you let the house out. But unless you’ve got the house or unit on the market for almost the whole year they won’t add up to much.

The taxman will apportion how much of the mortgage and other expenses you can claim according to how long it’s rented.

And if you’re caught staying there a day or two when it’s supposed to be on the market, there go any tax breaks.

Two of everything

For many it’s the extra costs that can come as a shock.

“They find two lots of rates, insurance and maintenance. They drive down only to mow the lawns and do maintenance so it’s not much of a relaxing weekend,” Phillips says.

Finding tradesmen, never simple, can be a nightmare.

“It’s not easy getting tradesmen because of where it is. You have to meet when it’s convenient for them. It’s a 40-minute drive for them. And you need a bundle of work rather than just one thing,” Lisa says.

And what about another mortgage? This can bring its own problems too.

A place “might only be accessible by boat but main road access is often the criterion for smaller lenders,” says Philip Sangster of Mortgage Choice Woolloomooloo.

Also the banks know that values in holiday resort areas don’t appreciate much, so will probably want to see a higher degree of equity.

“I’ve had the local branch say no but I’ve been able to negotiate a loan from the same bank,” Sangster says.

Another trap is insurance.

“Some insurers will not accept short-term holiday rental properties for any new business because they are generally only occupied during traditional holiday seasons and can therefore often be vacant for long periods between tenants.

“There is also a much higher risk of damage to the property where there are a number of different tenants in occupation,” according to a QBE spokesperson.

Wright insured with NRMA paying a “slightly more expensive” premium with a clause allowing you to rent.

Anyway there are other options to buying. If you like the house and the area, maybe you could rent it when you want it during the year with a permanent booking.

Or you could time share by buying with friends. But to avoid arguments or changes in circumstances later you’d need to draw up a contract stipulating how much who pays each month, who can buy you out at what value and when you can use it.

Or just invest wisely and use the returns for a decent holiday somewhere.

Think of the hassles you’ll save.

In fact there’s a world of cheap and interesting destinations out there that many are finding more attractive than staying in the same place year in, year out.

“The rise of low cost airfares and holiday packages over the past decade and the increasing popularity of international destinations for holidays, such as Bali and Thailand, are providing a growing cost-effective leisure time alternative,” says Andrew Wilson, senior economist for the Domain Group.

Another downside is the sprawling tentacles of our major cities which are making workaday suburbs of places that were traditionally a place for weekend retreats.

“Popular holiday destinations close to capital cities are increasingly being absorbed by the relentless spread of metropolitan areas,” Dr Wilson says.

“This is clearly the case for seaside locations such as the Mornington peninsula and Surf Coast in Melbourne, the central coast in Sydney and the Gold and Sunshine coasts.

“These are now becoming settled areas for full-time occupiers.” They can still come cheap – if you know where to look

Do you return from the beach and immediately check out what’s for sale on the property websites? You do? Well you’re not the only one dreaming of buying a holiday escape.

And dreaming’s the word. If you don’t have a spare $500,000 languishing in your bank account, purchasing a getaway can seem impossible. But believe it or not, there are holiday properties on the market for less than $200,000. It’s just a matter of scouting them out.

The experts say that to make the most of your investment a second home needs to be within a two-hour drive of your primary residence. The problem for those of us who live in the big cities is that anywhere that close is often prohibitively expensive. So you might need to go a little further afield to pick up a bargain. Maybe to Tassie.

Take this gem in Scamander on Tasmania’s beautiful east coast for $189,000. It boasts ocean views and is only a minute’s walk to the beach, pub and nearby river.

The bargains aren’t restricted to Tassie. There’s this three-bedroom house in Victoria’s Venus Bay for $195,000 and this two-bedroom house in scenic Port Macquarie for $162,000.

Property investment expert Paul Sonntagsays most bargain buys will need major renovation or at the very least, a good lick of paint.

“These properties are definitely becoming rarer and most of them would need a bit of love just to bring them up to speed,” he says.

“It really depends on whether people want to rent the property out to tenants.”

There’s an obvious cash gap between buying a holiday property for your own personal enjoyment and buying one you hope to lease to holidaymakers.

Weekenders costing less than $200,000 commonly need bathroom and kitchen renovations plus heating and cooling upgrades if they are to attract any tenants.

Those seeking a bargain may also have to adjust their expectations when it comes to location, says veteran Melbourne real estate agent Greg Hocking.

“You’re more likely to find them inland in a little country town than on the beach,” he says.

“You sometimes hear about houses in little towns selling for $50,000 and everyone races out there only to find that house is the only one in the town.”

Before setting your sights on a cheap holiday haven, it pays to consider just how much you are willing to sacrifice when it comes to location and how much you can afford in renovations, Hocking says.

ACTION PLAN

Things to consider if you’re thinking about buying a holiday home:

  • Don’t be emotional and make a rash purchase.
  • Proximity to your home is important – if it takes more than two hours to get there, you won’t visit that often
  • Treat it as a lifestyle decision, not an investment even if you intend to rent it out.
  • Suss out the area by renting or doing a house swap first.
  • Check the insurance and mortgage conditions.
  • Be prepared to let it out when you might want to use it.


Posted by Money Manager – Fairfax Digital on 28th January, 2015