05 Jan Buying a holiday home
When we buy a home to live in, or rent out as an investment property, we’ve been trained to buy well – do our research on the performance of the properties in the same suburb, look for the existence of local amenities, including schools, parks, shopping and transport, plus we also understand the value of doing property inspections to check for pests or other pitfalls.
So, why then do so many of us gaze adoringly at shabby looking properties in the windows of coastal or rural getaway locations and come up with the idea that buying a holiday home is an idea that doesn’t need the same research?
It’s all about emotions…
While we’re on holidays, having a lovely time with family or friends, we attach our feelings of happiness to that particular space – and we convince ourselves that any property in that same space will make us feel the same way. It might be true, of course but buying a property that requires a money pit of repairs and maintenance issues to enjoy it might end up causing more headaches than stress-free relaxation.
Think Before You Buy That Holiday Home
Just because it’s a holiday home, doesn’t mean it can’t also be a sensible financial opportunity. Buying a property in any town that is reliant on just one main industry is not a smart investment strategy.
If that industry experiences a downturn, the entire town will be impacted and that holiday home you’re paying that hefty mortgage for might not return what you’d hoped. And if your plans for the property include listing it as a future holiday rental when you’re not staying in it yourself, any downturn to the town’s community and infrastructure will have a potentially negative effect on its appeal.
If location, location, location is the mantra of city property purchasing, it should also be something you adhere to when buying a holiday home.
If you do plan your holiday home to also provide some holiday rental earnings, make sure you work out an honest and accurate representation of its genuine potential rental yield – including all the weeks it won’t attract peak season rental income and the many weeks it will probably sit empty – and balance that against the necessary outgoings you’ll need to spend on that mortgage, insurance, rates, maintenance and any major repairs. Remember that your holiday home needs to be fully furnished as well – and that can add up to a lot of money, even with basic furniture and whitegoods.
Pros and Cons of Buying a Holiday Home
- Rent-free holidays
- Potential rental income when you’re not using it yourself
- Possible retirement destination/home
- Appreciation (wealth-building asset)
- Potential tax advantages
- Financial burden of an extra mortgage – especially if you can’t always find a tenant
- Holiday rental management fees and costs if you rent it out
- Maintenance and repair costs
- Boredom of being locked into the same destination for every holiday
Buying any property is an important decision that demands a lot of consideration. Buying a holiday home could change your life for the better but make sure you weigh up all the pros and cons and talk to a trusted mortgage broker so you understand all your finance options and shop around for the best deal on your new holiday home mortgage.
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*Disclaimer: This blog is generic in nature. All financial and investment decisions should be considered wisely and based on your personal and financial circumstances. Seek proper advice before committing to any course of financial or investment action. This is not deemed as advice.