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The Holiday Home Trap

The Holiday Home Trap

By Michael Knights, CEO of Horizon Property Alliance

It’s so easy to get caught up in real-estate holiday hype around this type of year.
A short break to your favourite sea-side location is all it takes.
A trip to the local café for a laid-back coffee and hot breakfast before making plans on how to spend your leisure-time break. A cool drink after a warm summers day. A lazy wander down to the shore to watch the late afternoon waves breaking on the sand as the sun sets.
It’s all a bit alluring and will have many turning their minds toward the viability of investing in a holiday home.
While I’m all for supporting economic growth in our tourist hot spots, there needs to be some economic realism injected into this dreamy-days-of-vacation thinking.
As an investment, holiday homes can be challenging options, and here’s why.

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The risks

Holiday home investment carry all the usual risks of real estate holdings with a few unique hurdles thrown in for good measure.
Firstly – buyers do tend to add an emotional premium to the purchase.
I understand why – it’s easy to be swept up in the idea of holding title on your very own shack. Who cares if you pay a little above the odds – this’ll be where memories are made!
Smart investors know this sort of approach to investing is entirely counter intuitive. You must make purchases for your portfolio with your head, not your heart. If the numbers don’t stack up, ignore the emotional pull of the location and walk away.
You might also reason that you’ll use the holding as a personal weekender whenever you like. This is all well and good if you have the financial means to service the outgoings including maintenance, loan repayments and management fees, but if you’re relying on rental income to take care of costs, it’s a bad idea. Every weekend you lock away your investment is one more period without dollars coming in.
This leads to another hurdle most don’t expect. For many, a weekender becomes just another place of ongoing upkeep. You might discover weekends are spent mowing a second lawn or painting yet another damaged wall. It’s hardly relaxing.
Holiday home owners can also grow tired of heading to the same spot each weekend and start craving a bit of variety. If you’re looking for a getaway, renting out other accommodation in a nice mix of destinations might be the better option.
Speaking of costs, maintenance on holiday homes can be above and beyond standard investments. There is a heightened chance of damage, wear and tear that comes with having short stay guests unfamiliar with how the home operates. It takes just one well-intentioned but ill-informed holiday maker to let the pool filter run dry, or overuse the air conditioner to see your repair bill skyrocket.
Finally – vacancy rates are your biggest challenge with short stay. Even if your home is looking the business, there will be extended out-of-season periods where it will sit vacant. This is an opportunity cost many can ill afford

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How to mitigate risks

There are ways to improve the investment drivers of your holiday home purchase.
Firstly – short stay can be lucrative. This outcome has been enhanced by the establishment of sites like Air BnB and Stayz which have made booking short-stay easy.
Many property managers have seen the traffic these sites generate and have found ways to take advantage of the demand.
Secondly – engage a professional property manager. Do not attempt to look after holiday holdings on your own. They are high input where you can get calls at any time of the night as the guest wonders where to find a can opener or how to operate the coffee machine.
Look for homes with the essential holiday makers elements. You should ask your property manager what those specifics are. Again, on the Sunshine Coast, I’ve heard that air conditioning, free Wi-Fi internet, water views, ready beach access, a pool and being pet all go a long way toward securing guests.

When it works

If you really want to lock in a holiday home as an investment, I say you should apply the same selection criteria to this property as you would to any potential venture. Look for a combination of good growth fundamentals and strong rental demand.
Some of our regional holiday destinations have been doing very nicely of late, and it’s been on the back of more than just the tourism trade. The Sunshine Coast in Queensland is a great example. An infrastructure boost via the university hospital near Kawana helped drive the construction industry and has led to demand from those in the medical field boosting the local economy, and subsequently, the property market. The area has also benefitted from the affordability and lifestyle attraction for southern-state buyers.
Stick with the knitting of investment fundamentals when you make your selection so aren’t solely relying on the holiday season.

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