Monday 13 March 2017

Buying A Holiday Home

Buying a Holiday Home... Is it worth it?
Longing for a sea change or tree change? It pays to do your research

Ever wished you could own a little slice of your favourite holiday paradise and make money as well? We asked David Rankin, award winning bank manager and founder of sort my money (sortmymoney.com.au) about the pros and cons of investing in a holiday home…

Use your head, not your heart

The idea of beach swims every morning or long country walks sounds like heaven, but if you’re considering buying a holiday house, ask yourself if you can truly finance it. ‘Any investment decision should be made by the head, not the heart,’ David says. ‘It should also be made in the knowledge that no investment is guaranteed to succeed. You budget should allow you to absorb the costs of potential failure, but to plan for success.’

Will you make money if you rent it out on Stayz or Airbnb?

These services offer a good opportunity to make some cash, especially during holiday periods, but you’ll also need to account for the quieter periods. David recommends doing detailed cash-flow forecasting. ‘Forecasting builds in busy rental times and vacant periods according to the seasonal fluctuations of the area. It is a must,’ he says. ‘Once you have this forecasting in place, tighten the screws a notch – by reducing income expectations over time – to see If your projected figures still stack up.’

Consider your ongoing costs

David advises potential investors to consider the ongoing expenses of council and water rates, real estate fees if you are renting it out, emergency maintenance at a time when the house is occupied by holiday tenants (keep in mind this can be most costly In less populated areas), as well as property insurance and ongoing maintenance such as gardening and cleaning. ‘you also need to consider higher default interest rates for investment properties, due to rules that were brought in by the APRA, the bank regulator, at the end of 2014, if you borrow to purchase a property,’ David says. ‘Constant access to sufficient spare cash is therefore a necessity.’

Do your research

Check out domain.com.au or realestate.com.au to find out what the capital growth looks like for areas you’re interested in, and go and stay there to get to know all the streets. ‘It’s a good idea to hire a holiday house at least once before committing to purchase one,’ David says. ‘You might end up finding that one week a year manages to scratch the holiday home itch for you. And if is doesn’t, it’s a chance to experience a holiday home from the tenants point of view – an invaluable experience for the future if you do decide to invest.’

Referenced from New Idea Magazine

David Rankin, founder of ‘Sort My Money’