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’
