Pros and cons of buying a holiday house

Buying a holiday home is an emotional decision. And owning your very own patch of paradise can deliver many years of good times, relaxation and happy memories, not to mention the flexibility of being able to take off to the coast or the mountains on a whim.

If you’re thinking a holiday house will also be a great investment, it’s time for a reality check, says Jarrod McCabe, director of Wakelin Property Advisory. “Historically, metropolitan markets have consistently outperformed holiday spots in regional markets and that’s unlikely to change in the post-COVID economy,” he says. “If you do get good capital appreciation or rental returns that’s a great side bonus – but it definitely shouldn’t be your first aim.”

He warns you need to factor in extra bills for everything you already pay on your primary residence, from electricity and gas to wifi, rates and maintenance. Also remember that during an economic downturn, a holiday home is often the first thing those under financial pressure will try to sell – often at a painful loss. 

So you’re paying for the house in cash? Congratulations. For the rest of us, borrowing money to finance the purchase means being subject to the whims of interest rates. Finance guru Noel Whittaker, author of books including the just-released Retirement Made Simple, explains you’ll only be able to claim a tax deduction on expenses including rates, maintenance and interest if the property is income producing. Depending on your financial situation, that may compel you to rent it out.

He also warns against having too great a proportion of your assets in the residential property basket, and says there’s the possibility the land tax on a second property will put you into a higher land-tax bracket, which will then affect other properties you own. “If the money you intended to use to buy the beach house was invested instead into a quality share trust, over the long haul you would almost certainly receive a much better return on your money.”

Deciding to alleviate the expense of owning a holiday house by renting it out can be a smart decision – but it also triggers a cascade of conundrums. Casual holiday letting means you will need to provide everything from plates to a washing machine, all of which will likely suffer increased wear and tear due to the constant turnover of tenants, some of whom may not treat the property kindly. “To make matters worse, the managing agent may take 12.5 per cent of the gross rentals,” says Noel. Renting it out at peak periods such as Christmas and Easter can be a great money-spinner, but it will mean you won’t be able to use the house yourself at those times. 

However, many people find the figures add up. Melbourne-based real-estate agent Jane Campbell says renting out her Cape Paterson beach shack has been the route to realising the dream. She and her husband rent out the house for part of the year but make sure they keep the prime summer season for themselves. “It’s the best of both worlds – we have someone looking after it over winter and get to enjoy it over the Christmas holidays.”

Do you harbour a desire to explore Victoria, Australia, or even the world  – COVID permitting? In that case, being tied to one location might start to feel like a limiting choice. On the other hand, holidaying in your own house year after year allows you to create ties with another community. “We’ve been at Cape Paterson for 10 years now and we know the neighbours,” says Jane. “We’ve seen our kids grow up together and it’s just a really special place for us. There’s a real freedom in knowing an area really well. The kids can go wandering in their little gang and we don’t have to worry about them.”

Due diligence goes a long way when it comes to choosing a holiday home that isn’t a costly mistake. Property data website Landchecker, an RACV partner, will provide a free report detailing essential information on properties across Victoria and New South Wales, revealing any floodways and bushfire zones, planning restrictions and cultural heritage indications; it will also provide each property’s previous sales history. “You may also want to check the planning restrictions on the next-door neighbour’s property to find out if your view could be built out in the future,” says Landchecker’s Tori Stenhouse. “It’s a good idea to check the recent permit submissions and approvals in the area. For example, a house might be up for sale because there is a recently approved planning permit next door that will block the view.” 

It’s important to understand the real-estate market in the area into which you’re thinking of buying, says buyers’ advocate Nicole Jacobs. “A property may seem quite inexpensive, but you might unknowingly be looking at buying into the wrong pocket of town, for instance,” she says. Do your homework and investigate sales of other similar houses in the area to get a feel for value. Timing the purchase is another factor worth considering: “Wait until well after Christmas,” advises Nicole. “The last hurrah on the Mornington Peninsula is Easter, for instance, after which everyone packs up and goes home. Supply and demand dictate a market, so wait until mid-2021 for the COVID-induced market frenzy to die down.”

When the kids are little, they love nothing more than hanging out with you but in the not-too-distant future you might suffer the ignominy of hearing them complain about having to head down the coast for another boring weekend. Future-proof your holiday-home plans with a realistic look at what life might look like in five, 10 and 15 years’ time. Think about the impact of sporting activities and study keeping the family in the city as children grow older, but don’t forget to balance that against the unifying power of a much-loved holiday home. Soft-focus memories may well start here.