Error message
  • Warning: array_flip(): Can only flip STRING and INTEGER values! in EntityCacheControllerHelper::entityCacheLoad() (line 73 of /srv/www/drupal7/sites/all/modules/entitycache/includes/entitycache.entitycachecontrollerhelper.inc).
  • Warning: array_flip(): Can only flip STRING and INTEGER values! in EntityCacheControllerHelper::entityCacheLoad() (line 73 of /srv/www/drupal7/sites/all/modules/entitycache/includes/entitycache.entitycachecontrollerhelper.inc).
  • Warning: array_flip(): Can only flip STRING and INTEGER values! in EntityCacheControllerHelper::entityCacheLoad() (line 73 of /srv/www/drupal7/sites/all/modules/entitycache/includes/entitycache.entitycachecontrollerhelper.inc).
  • Warning: array_flip(): Can only flip STRING and INTEGER values! in EntityAPIController->load() (line 219 of /srv/www/drupal7/sites/all/modules/entity/includes/entity.controller.inc).

'Tis the season to be jolly, and smart about buying a holiday home

It is that time of year again when Australians pack their bags and head off to their favourite holiday spot for the summer. As you do this, chances are you’ll flirt with the idea of going one step further and buying your own slice of paradise.  

A holiday home can either be a great getaway for your family and friends, or a constant drain on your finances. It all comes down to the type of asset you buy and whether you can truly afford it.  

Many people buy a holiday home when they’re feeling flush, only to run into trouble when things get tight. Often, they already have a substantial mortgage on the family home and take out a second mortgage to buy the holiday home. They tell themselves that the holiday home is an investment because they can rent it out when they’re not using it, and put the rental income towards paying the mortgage.  

Don’t be fooled. To be a true investment, a property must produce a consistent level of income.  

Holiday homes can produce considerable income at peak periods such as school holidays, Christmas and Easter when demand is strong, but far less at other times.  

This inconsistency can make it hard to plan your finances, meaning you’ll probably have to pay most of the mortgage from your own pocket. You’ll also have to find money to furnish the property and fund ongoing costs like council rates, property management fees, insurance and maintenance.  

What’s more, being reliant on peak rental periods to help pay the mortgage will limit your own use of the property to non-holiday periods when the weather is less than ideal and you’re less inclined to go there.  

If you borrow to buy a holiday home while you’re still paying off your family home, you’ll be more vulnerable to the effects of changes in your finances. For example, if your household income drops because of a job loss or unpaid parental leave, you may be unable to meet the costs of holding two properties and be forced to sell the holiday home.  

If the change is one that affects the wider property market, like an interest rate rise, it may be difficult to sell your holiday home because potential buyers will be feeling the squeeze too. You may have to sell it for a substantially reduced price, or worse still, be unable to sell it at all.  

In short, it’s sensible to treat a holiday home like a second home, not an investment. If you’re going to buy one, it’s probably best not to do it until you’ve paid off your family home so that you only have one mortgage at a time.  

If you can genuinely afford to buy a holiday home, it’s vital to choose the right kind of asset. When economic times tighten, your property stands a better chance of holding its value if it is located somewhere that’s readily accessible from a major CBD. Try to buy something within two hours’ drive of the city and easily accessible via major highways.  

Select a location with a distinctive natural attraction such as a lake or beach; something that gives people a specific reason to go there. The property should also be close to amenities such as shops, cafes, pub or golf course.  

And yes, views really do count. A good view of a natural attraction can add considerably to your property’s value because potential buyers feel that they’re buying a slice of exclusivity.  


Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.

 

       

Mark Armstrong

Mark Armstrong

Mark Armstrong is a director of ratemyagent.com.au, Australia's number one real estate agent rating website.

Community Discussion

Be the first one to comment on this article
What would you like to say about this project?