As we reach the depths of a cold, wet winter people turn their thoughts to summer holidays and long days at the beach.
Known as the Other Australian Dream, the holiday shack has always been an integral part of Australian culture. If your family didn’t own one, it was handy to know someone that did!
Once upon a time, the classic corrugated iron and besser brick coastal getaway was an inexpensive investment. Today 3-room shacks are replaced with 2-storey mansions. Consequently, properties located at favourite holiday destinations are now a major financial commitment.
Like any investment strategy a decision of this magnitude needs to make sense over the long-term.
However, as most owners will tell you it’s easy to fall for the romance of buying a holiday home.
To help get your mind off the weather outside, let’s take a look at the pros and cons of buying a holiday house.
Great benefits
Having a place at the beach is great because:
- Years of fun for the kids.
- Creates a lifetime of family memories together.
- A gathering place for extended family and friends.
- The freedom to come and go as you please.
- Spur-of-the-moment access.
- Less hassle compared to other forms of holiday travel.
- Reimagine and renovate your holiday investment.
- Home away from home.
- Potential financial gains to offset costs.
- Eventual retirement home.
This is the dream that has put a sold sign on the front of thousands of coastal properties across Australia. But is there a reality check?
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Some compromises
- Same location year after year.
- Family stage may limit use.
- Too many other commitments as kids grow older.
- Major renovations due to growing family.
- High cost of holding and constant maintenance and repairs.
- Regional councils very restrictive on alterations.
- Financial gains unrealistic or fall short of expectations.
These compromises add some complexity to the decision. A holiday home that is perfect for your family’s current stage-in-life may turn-out to be a poor financial decision in the long-run.
Good idea or money pit?
Ask those who already own a holiday house and you’ll get a mixed response. For many people, the cost and hassle eventually outweighs any emotional attachment.
Further, what characterises a great holiday spot may not be conducive to making money in the long-term.
If income and capital growth are your main reason for purchasing a holiday home, then the most prudent decision may be to focus on another type of property investment.
Owning a holiday house is not a free holiday. One way or another you will pay for it. Here are some additional tips for keeping on top of costs.
Extra tips
Cash
Cash flow generated from renting a holiday house will fluctuate dramatically and will not be as consistent as planned. Receiving great rental rates can be followed by long periods of vacancy.
Preferred locations normally have a good supply of available rentals and customers are spoilt for choice. Therefore, the time and cost spent attracting and then looking-after tenants can also be a burden.
When it comes to costs, a holiday home means a second of everything plus extras. It’s important to budget all costs.
Maintenance
A holiday home requires a large buffer of spare cash. Properties can deteriorate quickly due to exposure to weather and salt and general wear-and-tear from being used. The cost of holding and maintaining can be high.
Growth
Buying a holiday home is discretionary and therefore their susceptibility to other influences impacting peoples’ attitudes can make these property markets volatile. It is likely you will not get the growth in value you expected. Exercise restraint and don’t rush-in at the top of the market, as market values can drop quickly in response to economic factors.
Timing
Mounting pressure to rent the property and generate the cash required to cover costs, will increasingly interfere with your plans to use the property. Everyone’s preferred holiday time is the same as your family.
Location
Popular rentals that yield high rents must be in a prime location, with all the must-haves and an element of uniqueness. However, entry level prices to buy properties in these locations are very high and stable.
Holding
The times you are enjoying your holiday house and the time it spends vacant can dramatically increase the actual cost of holding the property. Careful analysis of your finances may mean it’s actually cheaper to simply pay for different holidays each year.
Boredom
Lack of variety can tend to eat-away at people and may result in declining enjoyment of a holiday house and an increased focus on what it’s costing. As costs increase over the years, this can add to any frustrations about continuing to hold the property. Ask yourself is it cheaper to keep your holiday options open, as opposed to being stuck at the same location with mounting costs.
Related Reading: 'Bricks and mortar investment needs a strong foundation'
Seek professional advice
Consult a good financial and tax adviser to ensure you get the most from buying a holiday house.
Summary
The reasons people buy a holiday house are plain to see. Holiday experiences with family create special memories. We all want that feeling to last forever.
The lure of a house by the sea is especially strong gazing in the window of the local real estate agent whilst on holiday at your favourite spot.
However like any major financial commitment, be sure the idea is absolutely right for you and don’t let the ambition to own a holiday home take over.
Shop with your head and not with your heart. Seek high-quality professional advice.
If you are chasing consistent returns and capital growth then perhaps steer-clear of a holiday house.
But if lifestyle is the real kicker, make sure you strike a steady balance between finance and family.
Review your home loan and equity position today
As with all investments, it pays to understand your future circumstances, your individual risk profile, the key risks involved in property investment and of course always consult with financial and tax experts.
At Loan Avenue we know one size doesn’t fit all. It pays to have a conversation with a real person who wants to hear your story and run through some home loan examples with you.
Why not incorporate a discussion about your equity as part of our free no obligation home loan review?
It’s just one of the many features and benefits included in a tailored home loan from Loan Avenue – affordable home loan solutions for everyday Australians like you.
Let us show you. To make an appointment with one of our experienced and accredited finance professionals call 1300 56 26 28 today or leave a message here.
