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January 15, 2015

Getaway gains

By KIERAN CLAIR

I challenge any property tragic out to take a vacation and stop themselves from dreaming, even fleetingly, of buying a holiday home. It’s a situation fraught with emotional drivers that make buying into the dream seem entirely sensible.

The vision usually comes with a large dose of rationalisation – ‘We’ll use it every weekend!’ ‘The market’s sure to spike soon!’

In truth, an investment in recreational real estate can pay dividends but there are plenty of questions to answer before you start salivating at the prospect. It’s not a vehicle that suits every driver, but there are rewards to the right backer.

HOLIDAY SALE

Liz Sterzel of Property Wizards buyers’ agency says that investors who ultimately decide to proceed need to give careful consideration to their purchase, or risk ending up with a holiday horror.

“The biggest attraction is the idea of having a home away from home in a place you love to visit, meaning you can visit for free whenever you wish, and the rest of the year you’ll be benefitting from the tax write-offs that come with investing.

“However, as with all investments, nothing is ever so easy.”

Many Aussies envision the typical beach shack holiday. Justin Butterworth, property manager/sales director of bookings website Stayz, says vacationers love the nostalgia, but options are becoming more varied, with some verging on wacky.

“By and large nearly two-thirds of the market is the typical holiday house.

“We’re seeing a wider range of unique accommodation coming to the (web) site.

Whether it’s cabins or converted buses or trains, they’re really quite unique and amazing accommodation experiences.” While holiday home investment is obviously open to all, Butterworth says there are definite demographics among owners. The first is the ‘lifestyle’ investor who’s heading towards retirement. He says they want to diversify their assets and look to build a potential lifestyle come the end of their working days.

“These are investors perhaps in their 40s, 50s, 60s that are sort of planning 10 to 15 years out from retirement.” He says young, hands-on investors like holiday property too, as long as they can see the investment upside.

“They’re opportunistically purchasing properties in growth areas and actively managing the properties to achieve the highest occupancy with no intention to utilise the property.”

The third class of investors Butterworth sees are the lucky beneficiaries who need to offset costs.

“Those that might have inherited the property through the family and they’re much more passive in the sense of looking to defray the operating cost, whether it’s land tax, council rates and so on, and take a more passive approach to the investment.”

An investment with a view

An investment with a view

WHAT TO LOOK FOR

For the investor with a solid strategy, a willingness to do the research and the financial capability, there are opportunities to find a great holiday home that stacks up as an investment property in its own right, according to Sterzel.

“The main consideration, as overused as it is, is location, location, location.

“Consider your holiday home an investment purchase first and foremost, and look for an area which doesn’t only rely on tourism dollars, but has at least one other solid industry creating jobs and supporting the rental market during seasonal lulls,” she says.

“All factors that would usually attract a tenant are even more important in a holiday home investment; proximity to shops, amenities and good transport facilities.”

Butterworth agrees location and facilities are key drivers, but another important feature is character.

“Purchasing a property that reflects the character and the attractions of the area. (For example) in a beachy location, an open free-flowing property that really captures that sort of beachy lifestyle is a key success factor,” he says.

His other ‘must-have’ for great investments is to ensure your property caters to the visitor demographics of the area.

“For example in a popular family beach spot obviously having the right combination of bedrooms and bathrooms and parking spaces to hit the widest traveller segment is going to be key to the success of that property.” Finally, and above all else, savvy landlords will watch the property cycle when choosing the right time to take the plunge. Buying counter-cyclically will prove the most beneficial over the longterm for value growth.

investing in breaks
Areas with the fastest growth in holiday listings for the 12 months to the end of September 2014.
Top five listing growth areas
1. Sydney, NSW
2. Yorke Peninsula, SA
3. Perth, WA
4. Sunshine Coast, Qld
5. South Coast, NSW
Top five locations in terms of demand given the number of enquiries to property listings as at September 30, 2014.
Top five demand areas
1. Docklands, Vic
2. Gold Coast Waterfront, Qld
3. Surfers Paradise, Qld
4. Central Coast Waterfront, NSW
5. Glenelg, SA
Top five regional demand areas
1. Dubbo, NSW
2. Margaret River, WA
3. Gold Coast Hinterland, Qld
4. Hawkesbury River, NSW
5. Wilsons Promontory, VicSource: Stayz

HOLISTIC RETURNS

There are three sources of return from holiday investment, according to Butterworth. The first is the usual rental and capital gains that you’d hope to achieve from any real estate venture.

These are all part of the analysis that any savvy property investor uses when assessing a prospect. The second is the tax advantages where negative gearing can mean a big payday come end of financial year.

“The third is really non-monetary returns, which are the lifestyle returns of being able to access the property as an affordable holiday option through the years. That’s potentially great for families with school-age children. It’s a great way of getting away regularly and building those memories.”

DECIDING ON A DESTINATION

Holiday homes aren’t all sunshine and lollipops of course. There are risks with these ventures so you must factor them in when considering a purchase, Sterzel says.

“Maintenance and damage repair costs can be steep, particularly if properties are near the ocean, furnished or used exclusively for short-stay accommodation. Management fees are generally higher for short-term rentals, rental rates are unreliable with fluctuations between the high and low seasons and there’s always the possibility of the property sitting empty for weeks during the low season.

Liz Sterzel

Liz Sterzel

“If the going gets tough in the area you’ve invested in and everyone needs to sell at once, prices will be driven down.

After all, the holiday home has proven time and again to be the first thing to go when the economy is struggling.” Holidays are great, but discretionary spending fuels the industry. When the economy is in the doldrums, most vacationers will stay home and save their dough rather than splurge on a getaway.

This directly affects holiday home landlords who are trying to service the debt on their now more-vacant shack.

Butterworth says another negative is that buyers who plan on using the holiday shack may find they need to stay away to make it pay, or even that the home becomes too popular. “One of the downsides is that simply they generate too many bookings and get to enjoy the property less than they initially planned.”

BOOSTING THE HOLIDAY BUZZ

The key for most landlords is to maximise rent and minimise vacancy and Butterworth has a few suggestions on how this can be achieved. Firstly, make sure the property ‘sings’ to the unique experience of its location.

“It means choosing the furnishings and the configuration of the property that appeal to the travellers, and epitomise the attractions, of the area.

“If you’re in a beachy location, ensure you have an outdoor barbecue. If you’re able to provide a pool or a spa, those types of extras that make your property stand out will generate more enquiries and higher nightly booking returns.” Butterworth says not to skimp on exposure either. It’s no good having a hidden gem – tell the world and paint the property in the best light possible.

Use professional photography and provide a detailed description of what’s on offer in your advert. He recommends being a great listener, too.

“Being responsive to guest enquiries is critical to demonstrate that you’re really attentive to the guest experience, and that gives travellers confidence.” You can go one step further to help boost your property’s appeal – the sky is the limit in fact. Just make sure it’s viable and not too much of an imposition on you.

“Many offer auxiliary services. That might be a pickup at the airport or a mid-stay clean, a welcome hamper and so on. Those little touches help to maximise the rent and particularly drive that repeat referral business, which becomes a very attractive source of bookings as well.”

holiday accommodation types

Feature_investingholidayhomes

Average occupancy rates for holiday
accommodation:
15 weeks per year (29 per cent)
Average stay per rental:
Four to five nights
Source: Stayz

John Newlands, Gold Coast zone chair of the Real Estate Institute of Queensland (REIQ), offers starker advice. If it’s important to maximise returns, accept that you need to make your property available during the high money months.

“Obviously school holidays and Christmas and Easter are the times when you’re going to get the higher tariffs and the occupancy is nearly going to be 100 per cent. If you get an investor that starts using them in all those periods, there’s a big chunk of your income gone for the year.”

Newlands is also big on maintenance.

And it’s not just for the users’ benefit.

Property managers looking after a roster of holiday homes will tend towards recommending properties that show them in a good light to travellers, so keeping the place clean and in good working order is imperative.

HOW’S THE MARKET?

No doubt a number of readers will currently be sitting back and relaxing with their copy of API magazine on a comfortable lilo while sipping a mojito.

So what do our experts think of the market right now?

Butterworth believes there’s an optimistic feel after a number of less-than-promising years.

“I think the macroeconomic factors such as the (lower) Aussie dollar and the relatively strong economy are great for encouraging Australians to travel domestically rather than go overseas.

“Certainly the market is strengthening and I think it’s because of that that we continue to see properties listing at a very diverse range of locations across Australia.”

Newlands is also quietly bullish about the market’s prospects.

“With our dollar weakening it certainly will encourage a lot of domestic tourists to come back to us… they could go overseas for cheaper than what they ever have been before when the dollar was above parity. That did have an effect on Aussies because they were going abroad.”

THE WRAP PARTY

Be sure to remove the rose-tinted shades and look carefully at your proposed holiday home.

“If it doesn’t tick all the boxes to perform as an investment on its own, seek out expert advice, whether from a buyers’ agent or a trusted colleague, to buy a property with all the credentials for a great investment,” Sterzel says.

“With the right investment behind you, you’ll be able to relax on your next holiday.”

If a holiday home looks good, don’t be blinded by the sunshine. Do your due diligence, buy at the right price and be attentive to your purchase so your getaway shack becomes both lucrative and relaxing.

About Kieran Clair

Kieran Clair is the Editor of Australian Property Investor. He had almost 23 years experience as a registered property valuer, freelance writer and commentator before joining API in 2013. After three years as an award-winning journalist with the magazine, he was appointed Editor in 2016.