A getaway shack by the sea sounds good but sometimes the numbers don’t stack up.
Seduced by the lifestyle, many will dream of buying a holiday home in their special magical spot – a place they can call their own.
For some the reality will measure up but for others it could turn into a financial headache.
Experts advise people to take a cold, realistic look at the figures, citing the impact of the global financial crisis, which saw a wave of forced sales by cash-strapped families.
A financial planner at AGS Financial Group, Paul Bolstad, says only the ultra-rich can afford to have a property remain empty, waiting for the owner’s next holiday.
“What people should try to do with a holiday home is to look at it as an investment property,” he says. “People need to mix it together. They should look for a place in a position they like at the beach and then look at how they can get some return from their money.”
Like an investment property, he says, people need cash flow and capital to make a holiday home financially viable.
Combining business and pleasure may also prove difficult. The periods when it will be most in demand as a rental property – over the peak holiday periods – is exactly when you and the family will want to enjoy it.
On top of that, while the children are likely to be happy to go to the same spot every year while they are little, that could change when they are older and become more adventurous.
When stress-testing the household budget to determine if it is affordable, Bolstad says people shouldn’t forget to include council rates, land tax rules that apply to all second properties and the cost of keeping the property in good repair.
And, more importantly, there are the upfront costs – the purchase price, conveyancing costs, building and pest inspections and stamp duty.
The senior tax counsel at CPA, Paul Drum, says stamp duty can sink many financial plans. “People should look at the stamp duty on the way in because that will take a bit of recouping and it is not deductible,” he says.
However, the property can be negatively geared and the costs offset on a pro rata basis for the period the holiday house is on the rental market (even if vacant for some of it).
“It’s exactly like an investment property, which means you can also claim depreciation and a 50 per cent capital gains tax discount [when sold] if it is held for more than 12 months,” Drum says.
The problem with negative gearing is owners are essentially claiming against money they have already forked out, which requires a healthy cash flow.
Tourism Research Australia figures show more holidaymakers are looking for accommodation in houses, rather than the traditional motel, although this research is dated before the recent strength of the Aussie dollar, which has made overseas travel more attractive.
Kristy Shaw is the general manager of stayz.com.au (owned by Fairfax, publishers of this newspaper), a site that attracts 800,000 unique browsers a month looking for home and rental holiday accommodation. She says demand is rising despite the strong currency.
“Generally we are seeing a trend of people staying in holiday homes,” Shaw says. “There is a shift of people wanting that because they have the full facilities of the kitchen, garden and pool and they can take the kids and dog, which they can’t do in a hotel.”
Shaw says a week’s rent in the right location can command good rentals.
Among the highest demand areas are Byron Bay, with an average weekly rent of $2022, Surfers Paradise ($1427), Lorne ($1826), Torquay ($1962) and Jervis Bay ($1442).
But the senior researcher at RP Data, Cameron Kusher, says outside these hot spots rental prospects may not be so rosy, pointing to an average occupancy rate of between 60 per cent and 65 per cent.
Capital growth in these holiday areas may also prove elusive, at least in the foreseeable future, he says.
“A lot of coastal markets right across the country haven’t been performing as well as what we have seen in the city markets,” Kusher says.
“The holiday-home areas tending to do well are the ones located closer to the city markets.
“In Queensland, the Gold and Sunshine coasts are doing better than most other regional areas. In NSW, it’s Newcastle and Wollongong and in Victoria it’s the Surf Coast.
“Outside of those areas, there is still a bit of hesitancy from the GFC.”
It raises another important consideration. Unless you can reach your holiday home easily – say a few hours’ drive – you are unlikely to use it enough to justify all that financial effort.
Beach retreatworth all the work
Wife and mother of three youngsters Natalie Murdoch doesn’t mind one bit taking on a job just so the family can afford their beach holiday home at Culburra Beach, on the NSW south coast.
She and her family had holidayed in the small coastal town a couple of times with other families before Murdoch and her husband decided they might as well buy a place.
“We just fell in love with the area and from the second year onwards we started looking at houses,” Murdoch says.
Eighteen months ago the couple bought a three-bedroom home for less than $300,000 and pretty much gutted it, putting in a new bathroom and laundry.
“It’s a lovely little place,” she says. “We head down about five times a year, including a couple of weekends, and treat it as an investment the rest of the time.
“Financially it means I have to work. The bookings help but we know we are probably out $10,000 a year but it’s early days and there are a lot of establishment costs.
“We expect it will become more financially viable in the next year but we are in a position that we can wait.”
She reckons in the short time the family has owned the holiday home, it has gone up in value — much more than their Queensland investment property that they have owned for seven years.
Story by Peter Weekes, domain.com.au