Tread carefully in holiday home investment dream

January 2013 | Media Statement

People returning from summer holidays with dreams to snap up vacation homes that double as lucrative investments need to tread carefully, according to a local property buyers agency.

Property Wizards Buyer’s Agency’s Liz Sterzel said holiday homes could prove to be far trickier investments than many people thought and the best approach to deciding whether to take the plunge was to consider your key objective.

“If your goal is to build a high-performing portfolio, simply choose the best property for your investment needs in a city with solid industry and stable rental demand,” said Ms Sterzel.

“If that property happens to be able to double as a holiday home, fantastic, if not, happily pay for your vacations because it’s a fallacy that a holiday home will save you money – whenever you are using it, you aren’t collecting rent, so that lost rental income is the same as directly paying for a getaway.

“If, however, you are financially secure and would simply like a holiday home then the tip is to not only buy one you like but one that will also be an attractive rental and has attributes that will make it easy to sell if you want to do that down the track.”

 

THE RIGHT SPOT

Ms Sterzel said for those wanting to buy a holiday home with investment potential, selecting the right getaway spot was crucial as, overall, investing in holiday homes was much more risky.

“The best areas don’t rely on tourism alone to drive rental demand as some holiday spots can fall out of favour – stable towns with a sizeable resident population and factors to draw both residents and tourists are ideal,” she said.

“Great beaches aren’t enough; look for unique major facilities or attractions, significant shops and amenities, one or two good solid industries to create jobs and support the rental market when it’s not tourist season, as well as good transport facilities into the area.”

Ms Sterzel said it was also wise to investigate how a town had fared during previous downturns.

“Check out the impact on rentals and property prices in earlier tough times as this could give you a good insight into the strength of the market,” she said.

“You also want to invest in a town that tourists still want to visit in a downturn.”

 

WHAT TO BUY

Ms Sterzel said once buyers had decided on the location, they should opt for properties near the beach, shops and marinas.

“And looking for a development opportunity could make a holiday home purchase more lucrative,” she said.

“An older house on a block zoned for development may be a good option –your rental return would likely be lower because the home is older, but you could have great prospects in the future to turn it into two or three new holiday villas or townhouses.

“This has the potential for excellent returns and is within reach of mum and dad investors, but thorough research is essential to ensure you buy the right property and take into account building costs in remote locations, local styles of property, and so on.”

She said newer two or three bedroom apartments or villas in secure strata complexes could also be attractive to holidaymakers but may not give the best capital growth.

 

POTENTIAL PITFALLS

While vacation homes could be brilliant spaces to share fun times with family and friends, buyers also needed to be aware of common holiday rental drawbacks, said Ms Sterzel.

“Some of the reasons this type of property investing can be more risky is that homes can sit empty for weeks but you still have to make those mortgage payments,” she said.

“As well, maintenance costs can be steep, particularly if properties are near the ocean, furnished or sitting empty, and finding good property managers in far away, smaller locations can be tough and management costs can be expensive for short term rentals so before you buy, make sure you know if you’re looking for longer or short term tenants.

“And don’t forget to factor in the differences in rent in high and low tourist seasons and check out strata costs as they can be high in a resort-type tourist complex.”

Another trap was not being able to ride out tough economic times.

“Holiday homes are often the first things people sell when the going gets rough financially so if you are forced to put your place up for sale at a time when everyone else needs to sell too, you could take a big hit,” Ms Sterzel said.

 

BACKGROUND

The annual capital growth average over the last 10 years for the main holiday towns in WA has been similar to that of metropolitan Perth, according to the Real Estate Institute of WA’s data.

The northwest coastal areas from Jurien Bay to Exmouth, at just over 10 percent per annum have performed slightly ahead of the southwest areas from Busselton and down to Albany, which averaged 9 percent per annum over 10 years.

“The northwest areas, though, have far fewer sales and that, combined with the driving time to Perth, increases the risk of investing there,” said Ms Sterzel.

 

2 examples of current holiday homes for sale:

Bussell Highway, Margaret River

2 bedroom 2 bathroom apartment near the main centre

$335,000, rental return 5%

 

In the marina, Exmouth

3 bedroom, 2 bathroom townhouse

$725,000, rental return 12%

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