For investors looking to expand their portfolio and simultaneously achieve certain lifestyle benefits, a holiday home can seem a very attractive prospect. The purchase of a holiday home should, however, be a carefully considered decision, informed by a number of key market and personal factors. Chairman and Owner of Century 21 Australasia, Charles Tarbey, recently discussed the considerations that should underpin a holiday home purchase in the May edition of Century 21 Wentworth's Property Investor. We hope that you find this story an informative and enjoyable read.
Is now a good time to buy a holiday home?
Given the current state of Australia's real estate market, some investors may be considering the benefits of adding a holiday home to their portfolio. However, the question remains - is now really the right time to do so?
As with any investment, there are a number of key factors that should be considered before deciding whether or not to proceed with this type of acquisition.
Holiday homes can be quite an appealing proposition given the dual purposes they can potentially serve. They can provide a family holiday destination as well as generate additional income for the owner.
However, when deciding upon the purchase of a holiday home, an investor firstly needs to consider whether or not they can afford to finance the acquisition and fund its ongoing running costs. Lenders often have stricter criteria for holiday home investments and, as such, investors would be prudent to speak to a mortgage broker before taking the idea any further.
Furthermore, potential holiday home investors should look to have savings in place because if the economy doesn't grow they may find themselves stuck with the property, and its associated costs, for some time. Planning for various contingencies, especially low vacancy rates at different periods, will be key to making the purchase a successful one.
The overall health of the Australian economy should also be a key consideration because, until the domestic economy fully recovers, less people are likely going to take expensive holidays. In recent years, we have seen heavy discounting of holiday accommodation on various travel and accommodation websites due to this issue.
All that being said, holiday homes are probably about as cheap as they are going to get at present. While there may be potential for capital growth, it's unlikely that any significant growth will be realised until consistent growth occurs in capital cities; markets that haven't fully recovered yet.
If you believe that a holiday home is the right investment for your portfolio, and you have carefully assessed your financial position and the risks involved, there are number of property features you should look for when searching the market.
Perhaps the most important one is the location of the holiday property. Ideally, the property should be located close to an established city centre and an area of owner-occupied properties. Holiday homes that are located away from city centres are likely to be the last properties of their kind to realise capital gains.
Mandurah in Western Australia, Hervey Bay in Queensland, Portsea in Victoria and Nelson Bay in New South Wales are areas that I believe have potential as they have good infrastructure and are in, or located close to, city centres.
A holiday home is usually the first asset to be sold if one is looking for liquidity. The problem is often that if you have to sell, it's usually at a time in the market when few people are buying. If the buying pool has halved, you may be stuck with the asset or forced to take a price well below what you expected.
While holiday homes can be great investments, I would be erring on the side of caution at present as I don't believe the economy has completely recovered yet.
For more information about the residential property market in your areas of interest, please feel free to stop by your local Century 21 Real Estate office for expert and clear advice. Additionally, if you would like to speak to a mortgage professional about suitable loan packages, please contact Century 21 Home Loans.