When you’re on holiday, buying that beautiful beach pad might seem like a good idea. But, writes Lisa Montgomery, be careful about making investment decisions while still in holiday mode
Holiday romances are not just confined to people – when we’re relaxed, we can just as easily fall in love with a location.
So, it’s understandable that some people decide it’s a great idea to buy a property in that area in order to replicate the holiday feeling and combine their lifestyle choice with an investment.
Sounds perfect, doesn’t it? Not if you understand some of the perils and pitfalls associated with such a significant decision.
The first thing I would advise is not to make any immediate decisions while you’re still in holiday mode. This will eliminate much of the emotional element from your decision and allow you to consider all the implications within the clearer context of your day-to-day routine.
Then, if you’re still contemplating purchasing, you need to determine precisely the key reasons why you want to buy the property.
Are you doing it purely for lifestyle reasons, or are you looking for a solid investment – or do you want both?
If you’re doing it for lifestyle reasons to accommodate you during your holidays, you’ll still need to consider how it will work commercially over the long term, as any investment still needs to provide decent growth in the future.
Assessing a property’s overall appeal entails looking at your long-term financial strategy and determining how the purchase will fit into your plans – something which should never be done on a whim.
Not only do you need to closely investigate the area in which you are considering buying; when you’re crunching the numbers, you’ll also need to look at the economic conditions and possible factors that could affect rental return, capital growth and your loan repayments.
Carrying out a comprehensive pest and building inspection is a must, but you also need to do a wider audit of the property’s characteristics.
This includes finding out whether the area you are buying in is in a flood or fire zone; if there are any caveats on the property; if the property is part of a strata or title and what are the fees attached; and finally, what is the feel of the neighborhood and community.
It’s also imperative to have a clear understanding of what the council is doing in the area, both now and in the future – whether they plan to develop new infrastructure or create business opportunities to encourage more people to live or holiday in the area.
Many beachside suburbs have traditionally not performed as well as many people believe, so it’s important to look at all the growth drivers within the area you are considering.
For this reason, if you are looking at the property as a key part of your retirement nest egg, it may be better for you to invest first in other areas that offer more certain capital growth, and then buy something in your chosen holiday destination when the time and the market are right.
Another critical issue rests with your being realistic about how often you will be able to visit or use the property.
I’ve known people with young children to purchase a property as a weekender, only to have it then become increasingly redundant as the children grow up, as sport and social life take over and their needs change. So be aware that personal circumstances will not always be the same.
If you do wish to use a property for your own holidays or weekends, you’ll need to calculate what you can financially achieve from it during those times when you’re not there, taking into account the seasonal profile of the area for holiday makers.
You then need to find out:
• How much work is associated with managing/maintaining the property –
bearing in mind that other people won’t treat it in the same way as you would.
• How will you pay for any damage to the property? What insurances are available?
• Will you manage the property, or will you need to engage a local agent to manage it for you?
• Who are your neighbours and are they around much? It’s always a good idea to have a reasonable relationship with neighbours and keep them on side.
Considerations such as these will help you make up your mind whether such an investment is really for you, because although we all love a holiday, we can’t take a holiday from our finances.
Lisa Montgomery is the CEO of Resi Mortgage Corp