A common dream among our clients is to one day own a holiday house. When you hear about people who have successfully purchased holiday homes, it sounds like a great way to enjoy making money. Who wouldn’t want to have a property paying itself off while you get to enjoy it from time to time? But is it really a good investment?
You may know someone that purchased a holiday home in a sleepy beachside suburb before it shot up in value and it rents every weekend for hundreds or thousands of dollars. However, for the majority of holiday home owners, the reality is somewhat different. A holiday house can be a large expense and an asset to enjoy rather than to make money out of. Most holiday homes don’t make money, are often in areas that are not as well positioned for long-term growth and may be more susceptible to risk.
To give an alternative perspective on buying a holiday home, imagine you were buying shares in a company on the stock exchange. Typically, your decision to invest would be based on factors such as profitability, price to earnings comparisons, or future growth potential. You would likely not invest hundreds of thousands of dollars because you like using a company’s products. Yet, because property is often an emotional asset, investors will often forget some of the core fundamentals of value and cash flow when purchasing a holiday home.
If you are considering investing into a holiday home, take a step back and consider what it is you’re really trying to achieve. If it’s primarily for enjoyment and you have the means, then go for it. But know it’s a lot of additional cost for a family to support if you’re borrowing for it. If you’ve saved the money and can afford to pay for it outright, you also have to consider the lost opportunities. The additional profit you could possibly make from better investment choices could see you holidaying in Europe or Asia every year, so keep the bigger picture in mind.
If you decide to go ahead, here are some important attributes that you should consider if buying a holiday as an investment:
Many people end up either selling their holiday homes because they are either underutilised or end up becoming a financial burden. However it’s also possible to do it well and provide years of pleasure for your family and generations to come. Just make sure you take a step back and consider what you’re really trying to achieve and do your research if you’re buying for investment.