IT IS so close to the summer break you can smell the salty air and taste the piÃ±a coladas.
If you’re heading to the beach these holidays, as many Aussies will, it is easy to be seduced by the lifestyle of these coastal tourist hot spots â€” and wonder why you haven’t already bought an investment property there.
But before you start furnishing your new beach pad in your head and dreaming of endless summer holidays, investing in a tourist hotspot may not be such a wise idea.
Ben Kinglsey, chair of Property Investment Professionals of Australia (PIPA) said investors should be warned about making decisions with rose-coloured glasses.
“The most important thing is to understand that the mindset you have when you are travelling is not the same mindset you should have from an investment point of view. It might feel like a great location to be holidaying in, but not necessarily to be investing in,” Mr Kingsley told news.com.au.
“The first thing people think [when on holiday] is: ‘look at the demand, look at the interest, this should be a good investment’. They ultimately convince themselves that they could holiday there as well.
“They are trying to mix the leisure side of their brain with their investment side of their brain and that is not a good combination.”
Investing in property, or purchasing property in general, should never be dictated by emotion, explained Simon Cohen, a buyers agent and managing director of Cohen Handler.
“In summer, emotion comes into play for everyone … but it is really about sitting down and analysing how often you will use the holiday house or what it will be like in winter,” Mr Cohen told news.com.au.
“We always have clients who want to buy in Palm Beach in the summer but we tell them the best time to do it is in winter when it is miserable and no-one else is looking â€” and if you still want the place then it makes sense.
“From an investment perspective, you should definitely run the numbers around the yield and see how that looks.”
Mr Kingsley said yield becomes an even more important factor when you consider that the periods you would be able to achieve the highest yields are the same periods you would want to be enjoying the accommodation â€” which defeats the purpose altogether.
Property buyers should be careful of falling into the holiday trap. Beach homes in holiday hot spots don’t necessarily make a great investment.Source:Supplied
HOW TO INVEST IN A BEACH HOME
While you should be careful not to be seduced by investments, that’s not to say you can’t buy in a holiday hot spot. There are just a few checks and balances you should be aware of.
“Make sure you’re buying in a unique area and make sure you’re buying in an area that is going to be easily rentable,” Mr Cohen told news.com.au.
“Have a look at how much stock is available for rent and for sale in the area. Have a look at how often places are rented for, and what they rent for in the winter compared to the summer.
“I would run your numbers on the lower end of everything to be conservation and then see how it looks as an investment at the end of the day.”
Mr Kingsley said it is all about location. It is best to keep your holiday investment as close to a major metropolitan city as possible.
“The fundamental analysis is still a supply and demand story, and accessibility. If you’re talking about being one or one-and-half hours out of the major city centre, with a big population base, that is still quite accessible,” he told news.com.au.
“Properties are not as rentable in those particular environments where you have to travel for half a day or get on a plane to get there. It is important to understand the level of demand you’ve got and whether that demand is seasonal or year-round.”
You also need to be aware of cyclical changes, including how demographics play on the cyclical nature of demand.
“At the moment with a lot of Baby Boomers who are turning 65 and getting access to superannuation, some of these areas are doing better. But the reality is, people are looking for choice these days. They don’t necessarily go back to the same location every year,” Mr Kingsley said.
“It isn’t like 20 or 30 years ago where people often had one holiday location and that is what they did every year. The consumers of today want variety and choice so when you don’t have that underlining employment demand that is going to drive incomes in those locations, the reality is you carry a big risk in regards to investment return.”