If you apply for business finance in Kwinana or any suburb Smartline Rockingham serves, we get to know you and your financial situation so we can provide you with the right possible credit product. We know which companies are more likely to give the right terms, reasonable interest rates and highest likelihood of approval for most situations.
One of those situations is property investment loans. Since the Australian Securities and Investments Commission (ASIC) forced lenders to cap investment loan growth at 10%, investment loans have become more difficult to obtain. That’s why it’s more important than ever to have a great mortgage broker with access to an extensive support network such as Smartline Rockingham.
The Ins and Outs of Holiday Homes
One traditional investment property that is “coming back” into popularity is the holiday home. Holiday homes can make great investment properties but only if you buy with your head instead of your heart.
Too many would-be property investors fall in love with their favourite vacation spot and think a holiday home would be a great investment. The usual thought process is: “I’ll buy the home, spend holidays there and rent it out the rest of the time.” Then, they spend too many holidays there during peak periods and lose valuable rental income. This is obviously not a great strategy unless you have a lot of money to put into your property.
There are a lot of factors to consider when buying any investment property. If you buy a holiday home, you will have to hire a property management company to manage and maintain the property. For example, if you live in Kwinana and buy a vacation property in Geraldton, it is going to be extremely problematic to manage and maintain it remotely.
You also need to come up with a realistic number for rental yield and include local vacancy rates in your calculations. Here are four things you can do to make your holiday home investment a lot more profitable and less problematic.
Don’t Buy During Market Peaks
Not only is there a macro-market, in which houses in vacation areas trend with the overall market, there is also a micro-market in which holiday houses sell for more money during peak tourist seasons. Simply put, during peak vacation times, everybody wants to buy a vacation home. Wait for the micro-market to flatten out before buying.
Then, you have to pick the property correctly. If the property is of high quality and the location is great, a property will find a buyer in any market. When considering an investment property, always ask yourself if that property would be attractive in a buyer’s market.
Always Have an Emergency Fund to Use as a Buffer
People who rent holiday houses don’t always respect them like they would their own houses. They don’t do anything that allows you to keep the deposit but they tend to use a lot of appliances more. Air conditioners will be cranked up in the summer and heat will be turned up high in the winter. Appliances may get heavy wear and tear.
Another important cost is vacancy. All holiday homes have vacancies but do you have enough put away to make mortgage repayments if nobody rents the home for three months?
We recommend putting enough money away for three months’ rent and one major repair such as a roof or an air conditioning system.
Make Sure You Know All Costs
Remember: your investment property will have all of the same “miscellaneous” expenses as your home, such as water, electricity, maintenance, council rates, pest inspections, cleaning, insurance and land tax. This is in addition to mortgage repayments and property management.
Lease a Holiday During Peak Periods
Don’t “book” your own holiday home during the holidays. If you are going to stay in it, be sure to do it during “off-peak” periods. While it may seem painful, it’s usually better to just pay and stay at another property.
Call the Business Finance Professionals at Smartline Rockingham
If you are interested in investing in a holiday home or any investment property, call us today: (08) 9527 1800.