Money or memories: Five top tips for buying a holiday home
Buying a holiday home is all about creating memories but without losing out financially in the process, so following some key objectives is vital to success.
With millions of Australians drawn to the beaches, rivers and camping holiday destinations over this Australia Day break, many will spend the drive home considering buying a holiday rental.
Before the sunburn settles and the camping gear is cleaned out, it’s timely to consider the do’s and don'ts of owning holiday homes as investments.
Lifestyle vs investment
Buying a holiday home is first and foremost a lifestyle decision, not something that is just a bona fide investment.
The main factor that counts against holiday homes as an investment is their vulnerability to changes in the economy, which is especially pertinent in the current climate and increased interest rates and reduced spending.
When the economy falters and confidence ebbs, holiday homes are high on the list of expendable assets, especially if the owner is in financial difficulty. Combined with the historically lower property values in regional areas, this doesn’t augur well for consistent capital growth.
The investment value of a holiday home is marginalised further if used during the peak periods. As well as forgoing peak rents, the Australian Tax Office may question if the property is a genuine income-producing asset, which risks a disallowance of the benefits of negative gearing.
Those whose holiday home investment objectives only add up if the property is rented out 35 weeks-plus a year are in danger of having to think too much about the economics of the holiday home, worrying about whether they will gather enough rent to mitigate the second mortgage, whether the managing agent is doing a good job, and relying on all too frequently absent capital growth.
Result: the holiday home becomes a burden and an investment white elephant rather than the escape it should be.
With a clear ‘lifestyle-first’ attitude, buyers are most likely to choose a holiday home that suits their family’s needs and desires, rather than being compromised by those two conflicting goals – investment and lifestyle.
Take your time
Don’t buy on impulse straight after a fabulous two weeks in January.
Although buying a holiday home is a decision from the heart, the head also needs to have a say.
Give yourself a cooling off period. You need to confirm that you’ll like the property in the off-season as well as the bustling summer, or in the case of the ski chalet, when the snow has melted.
Visit at different times of the year. Does your desired location still have a soul in the off-season or is it a lifeless shell?
Also remember, holiday homes are available all year round, and you’re likely to get a better deal outside of the peak tourism months.
Buy like you bought your home
Make sure you undertake the due diligence before signing a contract.
Ensure you’re paying a fair price by researching comparable properties over a period of weeks and months. And have a pest and building inspection and contract check undertaken.
Buyers often underestimate how long travel times can cut the benefit they derive from a holiday home. If it’s a long and arduous journey, you’re less likely to use the property, no matter how wonderful the location.
Get a good property manager
Enlist a good managing agent to ensure high occupancy when you’re not using the holiday home yourself.
They ensure the standard of the property is always up to scratch and minimise the chance of guests being disappointed, as well as ensuring that best use is made of online short-let listing services to maximise occupancy rates.
If you are going to buy a holiday home, choose one that creates wonderful moments and memories. Any wealth creation opportunities should definitely be part of the decision-making process, but not the main game.