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Is a Beach House Worth it?

Holidays will do it to you. Hours of sitting on the sand, or lazing on the deck sipping sundowners. That decision. "Let's buy a holiday house". Seems like a good idea at the time – when the air is warm, fellow holidaymakers' smiles are wide and you're in a relaxed mode. But is it something you should do?

From a financial perspective, unless you strike it unusually lucky, you're probably not going to make a whole load of cash out of a holiday house say experts Rich Harvey, a buyers' agent who founded propertybuyer, and Michael McNamara, a general manager with valuers Herron Todd White.

Why not? "Pick say the south coast of NSW, areas like Bermagui or Sussex Inlet," explains Harvey. "They're lovely places to visit, great little fishing hamlets. But because they haven't got a great population driver, and not too many industries, they're not going to grow very well.

"They're lovely to catch a wave, lovely to catch a fish down there, but you know you're not going to see great [capital] growth." Harvey says if you've got half a million dollars to sink into an investment, you're probably better off putting your money into something that will provide stronger returns, and consider renting a holiday house every time you feel like a break.

"We typically advise investors to get something that's going to have a strong cash-flow component and a strong growth component, we're looking for key things, we're looking for price point, for access to shops, schools and transport [and] multiple industries," says Harvey. "We've got a 20-point criteria that we use to choose right kind of investment property, that meets the right criteria.

"If you've got half a million or a million dollars tied up in a holiday house, and it's going to be costing you 10 or even 20 grand a year shortfall [after rental income, maintenance and cleaning expenses, and negative gearing is accounted for]. That 20 grand a year, you can have a pretty nice overseas holiday for that too."

Financial returns from holiday houses certainly weren't looking rosy during the GFC when coastal prices took a heavy hit as owners decided their weekenders had to go to reduce the debt burden.

But life is not all about making money, and from a lifestyle perspective, there are attractive reasons to consider investing in a holiday house. Families love them because it gives them a place of familiarity to go back to year after year. They can invite as many friends as they want without the restriction imposed by the owner. They can add a BBQ, and have a boat parked in the shed. And if the holiday home is close enough – usually that means within a three-hour drive – it will likely get used for weekends, not just for extended holidays.

"The big advantage of course of owning your holiday home is that you can take all that stuff that you would normally take on a beach holiday, like canoes and surfboards and boogie boards and diving equipment and even bicycles," says McNamara. "You can just leave them there."

It's certainly a lot more appealing than what McNamara describes as a "parody of National Lampoon's Vacation".

"You see people in caravans laden with trailers and these contraptions strapped to the roof of their car they sort of ... trundle down the highway at 50 kilometres an hour," he says.

It's bad enough wrangling everything into – and onto – the car. And then you've got to do it all again when you head home.

A holiday home doesn't need to be in a far-flung location, either. Some city residents are buying apartments on the beach fringes so they can get away within an hour or two. The upside of this is there is potentially better rental return and capital gains to be had too.

Or another twist on the picture is buying a house that has a granny flat out the back (or the potential to build one) so you can use that during peak periods and rent the main house out – or rent out both when you are not there if regulations allow.

A sensible, modern makeover with some comfortable touches such as a barbecue, good storage and, in cooler locations, an open fireplace for winter, can help keep tenants coming back, and lighten the costs of owning a holiday property.

Source: Carolyn Boyd, Sydney Morning Herald, January 13, 2011

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