You would think when people go on that annual holiday during the year the last thing they would be thinking about is purchasing a property and investing in a holiday rental.
The opposite is true.
Two amazing groups often call during the holiday break.
The first group is those people who take the opportunity in the break to reflect on the year and how things have gone. This group then calls us because they are motivated to invest in property to improve their financial position and embark on some wealth creation.
The second group is the people who go on holidays and end up in an area they haven’t been to and surrounded by the beauty of the location.
They then often decide that possibly it is time to invest in a holiday rental is a right thing for them, since they could then go and stay as often as they want and buying and holiday properties as investments suddenly seems like a good idea.
So is buying a holiday home a good idea?
It can be if you follow some simple rules and buy with your head and not your heart.
Firstly make sure you remove the “romance’’ of a holiday home. While you might come in the middle of summer when a beach resort is a great place to be, what happens in the other ten months of the year?
Secondly, if like most people you plan to purchase the property with the intent on returning for regular holidays you will need to consider the investment merits of the property if the most popular and, therefore, the highest rental return periods are taken up by you.
Thirdly, make sure you investigate the average rental yields, the cost of maintenance and things such as management fees and cleaning not just how far it is to walk to the beach. If the property is in a complex, it is also important to check out the management rights as some resorts have a shared rental return arrangement which means while your unit may be rented if only 60% of the complex is rented you only receive 60% of the gross rent.
So you have discovered the next Byron Bay hamlet or holiday destination and the potential growth of the area look unlimited. This is the time to go and talk to the ‘locals’ about what they would like to see happen to their town/area. If there is a general dislike for development, you might find that you are purchasing a beautiful getaway, but the capital growth will be restricted by the local government. If on the other hand the ‘locals’ talk about how it would be good to see the area thriving and the job opportunities that that would bring then it time to start negotiating.
One last thing to consider, Is it better just to rent the same holiday property every year.
Consider the long-term benefits of holidaying in the same place on a long- term basis. Is this really what you want? What happens if the family outgrows the one bedroom apartment or you have teenage children who no longer wish to holiday with you and you’re tied to a four bedroom house.
Financially, would it be better renting rather than carrying the costs (and potential stress) of a holiday investment?
Lenders have rules on postcodes and loan to value ratios. Before making any final decisions, we suggest you give us a call on 1300761988 to check on any lender restrictions that may be in place.
Lenders also treat the rental income on temporary accommodation like holiday rentals differently to normal properties including limiting the rental income to 60% of the historical average. As a result, it’s important to check your borrowing capacity.
If the property is a boarding house, serviced apartment or part of a group or head leasing arrangement there may also be other conditions imposed on the loan so call 1300 761 988 or email email@example.com to check.