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October 8, 2014 | Media Statement
On the way home from summer holidays, along with their tan and a week’s worth of sandy laundry, many people carry the dream of buying their own holiday home.
Property Wizards Buyer’s Agency’s Liz Sterzel said that investors who ultimately decide to proceed need to give careful consideration to their purchase, or risk ending up with a holiday horror.
“On the surface, investing in a holiday home sounds simple and very appealing,” said Ms Sterzel.
“The biggest attraction is the idea of having a home away from home in a place you love to visit, meaning you can visit for free whenever you wish, and the rest of the year you’ll be benefitting from the tax write-offs that come with investing.
“However, as with all investments, nothing is ever so easy.”
A RISKY BUSINESS
Ms Sterzel reminds investors who are focussed on the tax write-offs as a benefit that those tax deductions do not apply during the time you occupy the property, and you will not be collecting rent during this time.
“So as a matter of fact, you’re essentially paying the market rate for holiday accommodation during the time you’re there, and the rest of the time the property is like any other investment property in terms of tax benefits, but may carry more risk.”
She said these risks can be numerous.
“Maintenance and damage repair costs can be steep, particularly if properties are near the ocean, furnished or used exclusively for short stay accommodation.
“Management fees are generally higher for short term rentals, rental rates are unreliable with fluctuations between the high and low seasons and the there is always the possibility of the property sitting empty for weeks during the low season.
“If the going gets tough in the area you have invested in and everyone needs to sell at once, prices will be driven down. After all, the holiday home has proven time and again to be the first thing to go when the economy is struggling.”
Ms Sterzel warned that investors without the financial capacity to ride out rough times, may find themselves in a market with too many sellers and too few buyers.
“Finally, if your strategy is to capitalize on tourism dollars in the high season, you may not get to enjoy your investment until the low season; you won’t be living the dream if the main attraction is the beach and you’re there in mid-winter.”
WHERE TO BUY
However, it’s not all rain on the holiday home parade. For the investor with a solid strategy, a willingness to do the research and the financial capability, there are opportunities to find a great holiday home that stacks up as an investment property in its own right, said Ms Sterzel.
“The main consideration, as overused as it is, is location, location, location.
“Consider your holiday home an investment purchase first and foremost, and look for an area which does not only rely on tourism dollars, but has at least one other solid industry creating jobs and supporting the rental market during seasonal lulls,” she said.
“All factors that would usually attract a tenant are even more important in a holiday home investment; proximity to shops and amenities and good transport facilities.
“Being close to the area’s major facilities and attractions, including beaches, will also improve the quality of the investment.”
The town of Margaret River, 277km south of Perth, is the vacation destination of choice for many Perth residents, and a stellar example of both the risks and rewards of investing in a holiday home.
Ms Sterzel said the attraction lies in Margaret Rivers’ proximity to the coast and reputation as one of Australia’s premier wine regions.
“The population swells in summer, with a reported rental vacancy rate as low as 1%, but this is markedly transient; tourists and residents alike tend to clear out in winter.
“In Margaret River as with the rest of the holiday home market, investment is still looking to be a risky business.
“While the real estate markets in most capital cities have recovered from the GFC, and are now steady with continuing options for the future, the mood in these tourism driven areas is still one of nervousness,” she said.
Be sure to remove the rose-tinted shades and look carefully at your proposed holiday home.
“If it doesn’t tick all the boxes to perform as an investment on its own, seek out expert advice, whether from a buyer’s agent or a trusted colleague, to buy a property with all the credentials for a great investment,” Ms Sterzel said.
“With the right investment behind you, you’ll be able to relax on your next well-earned holiday.”