Should I Buy A Holiday House?
Should I buy a holiday house? I want to ask you some questions to help you decide whether or not you should buy a holiday house. This is a decision that a lot of people make. It’s a decision that a lot of people think about making.
It’s very important that you consider all of your options. Consider if it is the right move for you, and where this will take you both in your personal life and financially. I’m going to get straight into it and go through the questions with you.
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1. Are you thinking of this more as a luxury or as an investment?
There’s two ways to look at a holiday house. You can either look at it and say this is going to be an investment property. I’m going to rent this out as a holiday house.
I’m going to make rental income from it. The property’s going to go up in value, and then I’m going to make money from it. Or, you can think about it as a luxury as in I love holidaying to this area. I want to holiday here more often.
I want to have a place where I can stay. I’m going to buy a holiday house. You really need to look at those two sides of the coin and decide which is best for you. That will determine what sort of holiday house you buy, what area you buy in, and what you need to accomplish out of your holiday house.
2. Have I accounted for vacancies in my calculations?
A lot of people will buy a holiday house, look at the rental return they can get. Maybe it’s $2,000 for a week in prime season.
Now then put that out across the entire year and say for 52 weeks of the year at $2,000 a week, that means this property’s going to bring me in $104,000 in rental income. Woo‑hoo. I am going to be rich.
Obviously, with holiday houses, you need to account for vacancies in your calculations. You need to account for off season rates as well. For coastal areas in the colder months, there tends to be a lot of vacancies. Around the Christmas/January period, it’s all of a sudden automatically full.
You need to look really realistically at it and look at what your vacancies are going to be like. If you’re not sure, talk to the real estate agent and say, what are the vacancies like for other houses in the area that are rented out as holiday houses?
Try and look at ones that are in the same price range as yours. You’re renting it for $2,000 a week, don’t compare it to the vacancy rates of one that’s $400 for a week, you know?
3. Can you add value to the holiday house?
If you’re purchasing your holiday house as an investment, you want to look for something where you can actually add value to the property. Maybe you can add an extra room. Maybe you can do some cosmetic renovations. Maybe you can put in a new kitchen.
Maybe you can landscape the garden. What ways can you add value to the property so that it goes up in capital growth and you have more equity in that property?
4. What are the ways I can maximize my rental return on this property?
Again, if it’s an investment, you want to maximize your rental return. There’s a few different ways you can do that. You can look at, what do I need to add so I can charge more and still get this property rented?
How can I lower my vacancy rates for the property? How can I add extra income by having a dual occupancy? Maybe you buy a house that has the main house, but then there’s a granny flat which is separate.
Maybe you could rent out those two separately, one as a holiday house, one as a permanent residency. Or maybe you can rent out both as a holiday house. The little granny flat might appeal to people who don’t have as much money or just don’t need as much space.
That might have a lower vacancy rate than the more expensive house. You’re getting two incomes out of that property, and you’re also helping to at least have something rented most of the time. Look for ways to maximize your rental return.
5. What is the opportunity cost that I am taking when purchasing this holiday house?
If you’re purchasing a holiday house, you’re using a deposit whether that be from savings or equity to purchase that place.
You’re also using up serviceability with the banks. You can only afford to support a certain number of loans based on your income. If you’re purchasing a holiday house, you’re likely going to be effecting and using some of that serviceability.
You have to think, if I wasn’t to invest in this holiday house, and instead I was to use that money somewhere else, what kind of return would that generate for me?
There are five questions you should ask when you’re asking the question, should I buy a holiday house?
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