I can remember confidently telling my Mum, at age 5, that I was going to own two houses. One was going to be in the country, with a wraparound verandah and several horses. The other was going to be right in the middle of the city, and would be shiny from all the new-fangled kitchen appliances and spiral stairways. Life didn’t turn out that way, but I remain hopeful. So if you’re looking for a tree escape, a weekender, a country getaway, I can completely understand. But what are the financial issues when it comes to having a holiday house?
When To Buy A Holiday House
Buying a holiday house has a lot of advantages. While not usually regarded as a strong investment (a strong investment would mean you rented it out on a permanent basis), it is an asset that, if maintained, you could earn some capital gains on. Generally this isn’t why people buy holiday houses- they want somewhere with comfort, facilities and availability. So ask yourself a couple of questions. Can you afford the maintenance of another house? Would you enjoy going to the same place every year? Will you be able to get to the holiday house frequently enough to make proper use of it?
What You Will Need
To avoid mortgage insurance (charged for any housing loan that has a deposit of less than 20% of the entire sum), you’ll need a big chunk of upfront capital. You’ll also need to be able to absorb ongoing mortgage repayment costs, be sure to spend around six months putting estimated mortgage repayments aside before signing on. This will give you a pretty good indication of how hard or easy it will be to absorb the costs.
You can claim tax relief on interest charged if your holiday house is available to rent. You’re only able to claim the tax benefit for the time the house was available, not for the time that you used it. To satisfy this criteria, you have to ensure that your house is advertised as available to rent- maybe on a holiday rental website or local newspaper. A lot of people set aside a couple of months a year for their use, and then list the holiday house for rent for the remainder of the time.
You want the location of your holiday house to be accessible from your home, provide a getaway but also be in a location that will accrue some capital gains. Sometimes well-known holiday spots can be tricky- because they’re full of holiday houses, there are often a lot on the market, making it harder to sell. Invest in an area you feel is undervalued, there are still some bargains out there in country parts of Australia.
If you’re not keen to rent, I know people who have jointly invested in holiday houses with other families. Obviously, any kind of co-investment carries a lot of issues with it; what will you do, for instance, if one family wants to sell their share? But if you’re both interested in similar areas and have worked out an arrangement with regards to the investment, then it can be a very cost-effective way to garner oneself a holiday house. As long as everyone can share nicely when it comes to Christmas-time, it can be a very viable solution.
The Right Time
With the GFC, and steep drops in the sharemarket, many owners were forced to sell their holiday house in order to cover their losses elsewhere. While the market is showing signs of recovery, now is still a good market for buying coastal or country properties. Just be sure you’re not in the same situation as those previous owners, and that your exposure across your portfolio has been minimised.