By Rich Harvey, CEO & Founder, propertybuyer.com.au
I don’t know about you, but this particularly frosty winter we’re having this year has my mind wandering to warm and far-flung destinations that don’t require a second doona on the bed.
While chatting with a mate recently, he mentioned a similar train of thought - only that he was also looking at real estate in places where the mercury sits a lot higher. And not just kicking tires either - he was seriously mulling over whether it was time to invest in a holiday home.
My internal alarm bells started ringing. My friend was potentially about to do the real estate equivalent of going grocery shopping on an empty stomach.
Worst (or best) investment decision ever?
Most people in the property game don’t view holiday homes favourably. And it’s understandable, given we’ve all heard more than a few horror stories over the years.
There’s been the horrid timeshare hotel trend of the 1980s and 90s that caught out plenty of people, investments in crudely made off-the-plan units in sleepy coastal towns off the beaten track in the early 2000s that overpromised and underdelivered, or shacks in quaint country towns that never really increased in value.
For many, the idea of putting your cash into a holiday home is one that’s simply too risky to entertain.
And it’s true. There are plenty of risks, but there are also opportunities to make it work for you and help you move closer to your investment goals.
You just need to be clear about what you want, what you want to achieve, and any roadblocks you might encounter. And you certainly shouldn’t go shopping on an empty stomach.
What’s the plan?
I’ve met a few people in my time who had sunk a chunk of money into a holiday home investment before they really thought about what they wanted to do with it.
If you’re considering buying a holiday home, ask yourself an obvious but important question: why?
Are you going to head there every weekend? Once a month? A few times a year? Or is this a place you’ll venture to later down the track on a semi-permanent or even full-time basis, say during your retirement years?
Is it something you’ll enjoy on your own or will your family and friends have access too? How wide will that invite net be cast? Let me tell you, if word gets out that you’ve got a crash pad somewhere lovely, you’ll suddenly hear from people you’d long ago forgotten about!
These questions are important to answer because you need to know what you’ll do with the place in terms of cash flow.
Will you be there regularly? That might make it tricky to get it into a regular rental pool, meaning you’re at the whim of the rest of the holiday market. But if you want it for yourself during peak periods, can you afford to reduce the amount it’s bringing in by not letting it to other holidaymakers?
If regular visits and thus short-term letting is your plan, you need to be aware of some seismic shifts in the landscape. A growing number of councils are cracking down on short-term rentals via platforms like Airbnb and Stayz. Some are imposing hefty levies on council rates while others are capping how money days of the year a property can be let. Depending on the area, there could be some serious punitive measures in place.
And don’t believe that just because the patch you’re searching in doesn’t have any restrictions in place that it’ll be that way forever. There’s mounting pressure from locals, building body corporates and special interest groups to crack down on short-term rentals for a variety of reasons.
If you’re thinking very long term and want to get a place for later in life, then obviously you’re opening yourself up to more stable and reliable income. But you need to understand the local rental market to ensure there’s demand there - not just for properties, but for the type of place you’re considering buying. During the summer period rental returns are fabulous, but during winter- research the average vacancy rates.
Most importantly, think about how this idea fits into your overall goals. Where are you hoping to get in your investment journey? What goals do you want to achieve? Is this going to help - or hinder - those things you want to achieve?
Is the growth there?
There might be a temptation to look at what’s happened in many regional property markets over the past few years and consider that a sign of what’s to come.
This is a risky way of viewing things.
While it’s true prices have gone nuts in a lot of regional towns, a major part of this growth occurred during the first few years of the Covid pandemic when people were getting out of capital cities.
And in many other cases, those markets - take the Central Coast of New South Wales, for example - were already on pretty steep trajectories… and that’s not necessarily reflective of all areas. Many locations are still primed for growth and have excellent demand – like Terrigal, Avoca, McMasters and Wamberal beach.
There’s no one type of property market. Within a market is also likely to be several micro markets, each driven by their unique mix of factors. Simply thinking a beach town or country village is going to be great for growth is flawed thinking.
What’s the place you’re interested in got going for it? Does it have a robust and diverse economy? Is there a single industry, raising the risk that a change in fortunes could severely impact the real estate market, or are there multiple drivers of employment and income?
What’s the supply and demand equation like? Is there anything on the horizon that’s going to change that, such as major land releases and a boom in development?
What are the local demographics like and is there a shift? Is there a good number of young families? Do young people stick around after their school years or flee elsewhere?
How strong is the visitor market too? Do people come throughout the year or is there a particular busy season? If it’s the latter, how long does it last and how heavy is the influx of tourists? Is the level of investment in the tourist market solid or is there a risk that neglect could one day see the number of people coming to town dwindle?
As you can see, there are multiple considerations, and some will be more important than others depending on what your personal goals are for the property.
Don’t go in blind
Holiday home investments are indeed risky, but there are cases where it could work for you - both now and in the long haul.
Think of those who put their money down on a home in Byron Bay, the Sunshine Coast or the South Coast some 15 odd years back. How envious are their positions now? Great growth, great regular income, and a great place to visit.
But don’t risk making an uninformed and potentially dangerous decision. Enlist the services of an experienced and qualified buyer’s agent who can help you navigate the pitfalls. They’ll work with you to figure out what you want, how it fits in with your broader goals, and what options are on the table. They’ll help you to identify possible areas, find opportunities - both those on the market and the ones you won’t find on your own - and then manage the buying process.
Choosing a buyers’ agent is the best investment decision you ever make, second only perhaps to that dream retreat by the beach or in the bush.
To have one of the friendly Propertybuyer Buyers' Agents to contact you:
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call us on 1300 655 615 today.
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