In this week’s episode #66 of the Property Planner, Buyer and Professor Podcast, the team discuss “Holiday houses – delirium or dream?”, as Dave, Cate and Pete take you through:
- Lifestyle, investment or hybrid – what is a holiday house? The trio share whether you should be looking at your holiday home as a lifestyle property, a money-maker or a mix between the two. They shed light on the compromises involved when opting for the hybrid scenario, and the black and white facts that investors need to acknowledge.
- The opportunity cost of owning a holiday home. Holiday homes are typically in locations that do not exhibit long-term, outperformance capital growth, and your own use of the home will limit the rent you could receive and the tax advantages you could have gleaned if the property was intended to serve as an investment. To compound the financial impact, if you’re borrowing to make this purchase, your borrowing capacity will be significantly reduced for your next investment. Consider how your retirement goals will be impacted if you purchase a holiday home instead of a pure investment.
- Tax deductions. The trio explain the tax implications of leasing out your holiday home, whether it be a long-term, traditional residential lease, a short stay arrangement or an ad hoc approach.
- The perils of purchasing with friends or family. Be careful before you dive right in! Purchasing a holiday house with your mates or siblings may seem like a great idea at the time, but the reality of managing the property jointly can be the cause of many strains on the relationship. In addition to a usage roster and the clean-up and provisions protocols, co-owners also need to consider how joint ownership arrangements can change and evolve. The trio talk about the importance of an out-clause and rules around equity access before signing on the dotted line.
- Managing a holiday home. If you plan to lease out your holiday home for part of the year, there are differing management fees and service costs that must be factored in, depending on whether your property will be leased ‘hotel style’ like an Airbnb or for longer-term stays. From appointing cleaners to sourcing breakfast provisions, to linen changing and beyond, the trio discuss the various ways that holiday house investors can maximise their profits over a holiday period.
- When should you buy a holiday home. Although cash flow, long-term investment and ongoing maintenance are critical factors to consider, the memories and traditions that you’ll create with your family in a holiday home are priceless. The trio share when is a good time to consider purchasing a holiday home, and when running a cost-benefit analysis between renting vs buying is a more sensible approach.
- What’s in store for 2021? 2020 has seen some holiday locations take capital growth by storm. But will the tree and sea change trend continue or has the capital growth boat for holiday locations already sailed? The trio reveal their predictions for 2021.
- And of course, our ‘gold nuggets’!
David Johnston- The Property Planner’s Golden nugget: if you’re looking at buying a holiday house, work out the annual cost. Consider will it impact your retirement goals and whether you could allocate those funds to go to a great holiday every year or an investment property that will have more of a positive impact towards your retirement goals.
Cate Bakos – The Property Buyer’s Golden nugget: If you can weigh up the scenarios – buy your holiday house and enjoy it, factor in the running costs. The second scenario is to think about it like a rent-vester, rent where you want to stay for your holiday and purchase an investment somewhere else. Get clear on the numbers.