holiday home a silly investment?

[frazzledfozzle]

Is it silly to invest in a holiday/ retirement home now when we probably woudn't get a heap of use out of it until we retired in 20 years?

There's a couple of areas in Nelson we would love to live when we retire and homes seldom become available. We are wondering if it would be financially stupid to buy something now if it came up and maybe rent it out as a holiday let and use it ourselves occasionally.

Thanks for any ideas
frazz

[TheLiberalLeft]

Silly investment - depends. Sanity-provider lifestyle awesomeness - absolutely.

Although hold fire until the mixed-use assets tax changes come into being. If they are as bad as they're currently made out to be, there'll be a few more coming on the market, don't you worry about that.

[Gladdynook]

There are better investments from a financial gain perspective, however there is a lot enjoyment to be had from having your own bach and renting it to others.

There are some good deals to be had right now too. Running a property successfully does take a bit of time and effort, and you certainly need to be committed if you are to take advantages of any tax benefits. As TLL mentioned things in this space have changed/are changing so a half hearted "we'll rent it for a couple of weeks each year" doesnt cut it in the IRD's eyes anymore.

Some things to think about:

Advertising your property - We primarily use bookabach.
Also use holidayhouses and holidayhomes as these two seem to get more international bookings than bookbach, but overall bookabach performs the best.

Cleaner – need someone local (and readily available) to do a clean or check after every guest
Insurance – special holiday rental insurance is required
Keys – we have a set with the cleaner and a set locked onsite
Fitout – probably the biggest area to focus on. Nice duvets, modern crockery (not expensive tho), books, DVDs, plenty of wine glasses etc.
Good heating is important for winter bookings
Then it just comes down to being prompt when replying to enquiries, keeping the booking calendar online up to date etc.

It is very rewarding hearing peoples holiday stories and having return guests year after year. Some of the stories in the guest book are hilarious!

[essence]

HI FF

What you're looking at is your Retirement Home (albeit in 20 years time) not (IMHO) a true Holiday Home. This kinda changes the dynamics a bit.

Over a 20 year period, houses will increase in price. It doesn't matter how up/down the current market is, have a look at house prices in this particular area 20 years ago. Even with a small capital gain, where would you expect prices to be sitting then? How do they compare to prices there today? (all rhetorical).

IF you buy a property there now, you will get the opportunity to use it over the next 20 years. Christmas/New Years with family & friends. "Escape" weekends, when life gets a bit tough. You will be able to rent it out via BookaBach (as an example) but you MAY NOT be able to recover expenses. See TLL's comment. Work on the assumption that you will have to totally support this property until you can retire there ie all expenses must be covered by yourself.

During this 20 year period, you've got time to do long-term maintenance, paint/landscape it the way you want. Put in a solid bbq area.... if that's what you choose.

If you don't buy a property there now, could you afford or have the capability (when you're about to retire) to service a loan? You would be moving into a new house (for you) that could need some serious maintenance. You might have just retired but would you be fit enough and have the finances to make the property the way you want it?? Or would you be spending your retirement getting the house just right for your vision.

Our Family Trust owns a Holiday Home. Believe me, it has saved my sanity on a few occasions. We've had a family wedding, a couple of Christmases/New Years (so far), unscheduled gatherings which turned into wonderful, hilarious, life-focussing events.

It's recently been available for rental bookings. These have been reasonably steady and the money received is enough to cover the rates, electricity, cleaning charges, maintenance used by renters etc. They do not cover the mortgage payments or any large improvement items that the Trust has planned.

The Trustees ensured that the Trust accountants knew EXACTLY what was going on BEFORE it was built, how to structure it and they advised the Trustees what was the base-line scenario that the Trustees needed to be aware of WHEN THE PROPERTY WAS BUILT. Obviously things (tax rules) change.

Plan for the Long Term but make absolutely sure that the Short Term isn't sacrificed getting there. Life is too unpredictable for that.

What is your gut feeling telling you? (Rhetorical)

Only you can live your life..... make sure you having fun while you're doing that.

[frazzledfozzle]

Thanks so much for the replies everyone.

My husband and I have been thinking about investing in a rental/rentals for ages now actually years I joined the forum in 2004 which was when we first started thinking about it. I've been a bit reluctant to actually go ahead with a purchase for a number of reasons the main one being not confident that either of us would be able to deal with the day to day maintenance of a rental and being scared stiff of getting tenants like you see on the tv program renters, not to mention the occasional horror stories on here and in the magazine.

Having said that we both know that property is the way to go. My husband bought his first property a 2 bed ownership flat in Woolston when he was 16 it had to be done in his Dads name because the bank wouldn't lend him the money he was too young.
Since then we have both worked hard and have had a couple more homes that we lived in until we got to here.

My parents also did well out of buying bare land many years ago selling that gave them the money to buy the home they are in now and the section next door both freehold. They also have a small block of 3 acres they are holding onto this was bought a long time ago.

All these properties and land appreciated in value many times over and I'm sure there's no way that amount of money would have been accrued if they had relied on banking savings.
So long story short I like the idea of having property withour the day to day worries of tenants but knowing that all things being equal it should be worth more in 20 years than it is now.

The only other thing that bothers me is the price of these places Anything in the Marlborough Sounds with road access or anything coastal in Golden Bay will cost us upwards of $400,000 is this too much to pay for something that we wont get a real return on until we sold up in 30 years? should we look at bare land and put a caravan on it until we can build without a mortgage?

We had a bach at the Rakaia River mouth some years ago we loved going there salmon fishing every weekend we bought it for 18,000 sold it for $40,000 and to buy a small genuine kiwi bach there now would cost around $100.000.

So I'm thinking get in now because prices dont seem to be slipping here at all and sorry for being so long winded

Thanks for any help with this

[essence]

It matters not about the structure on the land. If you're happy with a caravan, why not?

Your train set, lay the tracks however you want.

You do need to make a decision. Continually procrastinating will get you nowhere.

Hard decisions are always that - HARD.

[Maccachic]

There is a property manager in Nelson that frequently gives good advice on these boards maybe you should get in touch with him? http://www.propertytalk.com/forum/member.php?18-Glenn

[Toasty]

Wow. People make choices for various reasons but what if you had bought some property in 2004. How would it be looking now? There have definitely been some major events between then and now but I think it would be safe to say that you would be sitting on a decent chunk of equity about now. There was an article in the property investment mag a few months ago about people who put off investing because they were waiting for a year without a major drama. The advisor who wrote the article pointed out that there had been a major event just about every year since they had been thinking about it and their family property had appreciated about 400% in spite of everything over a 15 year timeframe. What would they have if they had bought investment property as well?

Anyway if there are aspects that worry you then hire an expert to take care of it. Its generally tax deductible and pays dividends by removing that part which puts you off.

Personally I would steer clear of retirement/holiday property. Buy pure investment property. You can always sell it later on or leverage against it to fund whatever you have in mind but in the meantime it will provide peace of mind by delivering a regular and sustainable return. Hope that helps.

[frazzledfozzle]

You are both right about procrastination Toasty and Essence and I totally agree with you. When we first moved back to Nelson in 2000 we could have bought a 3 bedroom house on Gladstone Road in Richmond for $80.000 that same hose today will cost $300.000.

Maccachic I follow Glenns postings whenever he puts something up and I have thought about going to the property investors meetings at the Suburban but am a bit shy and as I dont even have a house yet feel like an imposter

I just wish I had the intestinal fortitude to go ahead and do it.

It's ridiculous to have our money sitting in the bank on 4%

Thanks everyone for taking the time

cheers
frazz

[Maccachic]

Just go to one meeting its not as daunting as it seems. Doesn't matter if you haven't got any rentals everyone started off in the same situation and it may just spur you on to make the move.

Also start going to open homes and get a feel for stuff.

[frazzledfozzle]

Thanks Maccachic I'll head out this weekend and look at some places

[Tan]

It is hard to know what you will be feeling like in 20 years. I finally went to live in my place by the beach which was exactly as I wanted it and then a couple of years later ended up moving to Australia! I like to think I will move back there in 20 years to retire, but who knows?
In the meantime I have it rented out at a 5% gross return (no expenses included for a quick calculation), but fortunately I have other rent and income to prop it up.

The main things I have discovered since renting it out are:
I was very lucky to find a good property manager to take it on as it is in a small area
It is hard to get tenants, and even harder to get decent ones
Rents have gone down over the past few years as petrol prices have gone up
Value has gone down and will be one of the last to rise
Extra expenses seem to crop up ie sewerage

Nelson may be a lot different, and I can live without a holiday home - it's probably cheaper to rent another place. My parents had a holiday home and although it was wonderful for us all to use, they paid 2 sets of rates, power, mortgage, maintenance, gardening, furnishings etc. I was horrified when I saw the cost when going over their accounts and it put me off.

I'd buy more real rentals first and make enough to buy one in 20 years time no matter what the cost.

[NovInvestor]

Personally, I think it is far cheaper, more flexibility, and less maintenance/renting out/accounting issues by renting a holiday home/boat/yacht/car.

If you buy a holiday home, you are stuck with it, which commits you to going there during all your holidays, same with the boat.

But by renting, you just need to pre-book, and you have a lot more flexibility in choosing where you want to go, where to stay, and a lot more fun and excitement of going to new places.


For investment, just buy a typical low maintenance property in a leafy suburb (nice term by Olly Newland) in main centres, and watch the capital gains grow. By the time say 20 years later you want to retire, use the investment properties cashflow to sustain your life style.

In fact, if you have great cashflow, say $5000 a week, you don't even need to own your own home. Just go renting/hotel in Gold Coast, Hollywood, Dubai, Tahiti (you may need more rentals to support this one!), Hawaii, Paris, Madrid, Queen Victoria III etc.