HI
I would like a holiday house, for me, and my family, perhaps off season to allow peak season rental. It goes againts everything you do in property (hence the guilt), but its a lifestyle choice. I realise Im staring a negatively geared property in the face. Income is high and tax is high but Id like to offer up the following and see what feedback I get. Here is my current scenario and my question would be, should I swallow my “lifestyle wants” or remain on this path.
PPOR: MV $550K morg $190K
IP1: Pur $225K rent $195
IP2: Pur $265K rent $240
IP3: Pur $250K rent $220
IP4: Pur $237K rent $375
Holiday house: Pur $800KI know that looks heavily negative. IP1-3 come out neutral after tax & deprec, cap growth is excellent there. My Income is high and tax is astronomical. DSR is very good, banks willing to lend up to 80% (currently at 20% without taking into consideration any rental income as income is strong). So, if I bought my guilt ridden holiday house, and then bought +ve cashflow poperty after that, rebalancing up the portfolio, I would come out ok? My goal is within 10 years my net worth is 10 Mill.
Im a bit worried posting this, as its somewhat very exposing, but Im willing to launch the missile and shut my eyes.
Be as honest as you feel to be……. nicley though
Thanks
Jars
I know you said your income is high, but by purchase this holiday house it will most likely hold you back many steps toward $10 million net worth in 10 years. I really admire people like yourself who really have an ambitious goal and believe that you can achieve it. Good luck
Warm Regards
ChanDollars
[Keep going, you’re on your way to financial freedoom]Hi jars, welcome back!
I have no clue on the holiday home, because 10 million is out of my, ahm,
area of expertise shall we say, but i just wanted to say hi!cheers-
miniGidday jars
Well I think you’re out of my league. Myself, I’m aiming for 2 – 3 million net worth in five years – haven’t thought about ten mill yet!!
I do believe though, for anyone on here to give you some real advice they would maybe require more info, like your gross income etc. and obviously it not advisable to provide that much detail on the forum.
To sound like a wet blanket, I would suggest seeking private professional advice (sounds like you can afford it!!) Maybe someone on here can suggest a high quality (expensive) advisor.
Actually if I was you I would possibly ask for advise from Steve himself, he would have contacts gallore!!
(However if I was me I would ask my own investment advisor – he is pretty damn good!!!!)Mick
Hi Jars11
This is a position we have often pondered, usually while in Broome, Yallingup or in the snow over East.
We have made the decision that we would rather spend money on a holiday at a destination of our choice and at the time of our choice rather than be committed to one location and not at peak times. I don’t know if you have children but their school holidays have a habit of coinciding with peak holiday times.
If you let the property for short stays then the wear and tear can be quite high and management costs are higher.
You may find yourself repairing things around the place while you are supposed to be on holidays.
My advice would be to invest elsewhere and use the money saved to holiday wherever and whenever you like.Regards
SMTMJars
As SMTM said why commit yourself to one location for your Holiday’s ??
In saying this it’s also a ‘personal/lifestyle choice’, why not do the basics of making a pro’s and con’s list..If you can afford it and it’s your gift to yourself and family,why not, however it seems contrary to your goals??
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
Hi Everyone,
Thanks mini, yes Ive been watching from a distance and havent said boo for ages.
I think I will make a pros and cons list. Will talk to my accountant (though I know she has one seriously negatively geared holiday house for her, so perhaps thats not a good choice). It wouldnt limit me to holidays there as I do travel for work and tend to stay on, I just wanted something that was 1hrs drive from Mel where I dont have to hop on a plane (no kids, my brother has kids so Id like him to use it). It all hangs on the business, no business, no life, basically.
I appreciate your feedback. Allow me to present new numbers on Wednesday next week and may I open up this discssion again, if thats ok?
Many Thanks to all you very kind people.
JarsAm I reading this right? $800K seems an awful lot to spend on a weekender.
regards,
Rod.
Jars,
Renting out our holiday house has been a pain in the arse. Middle class families from “good” suburbs pay up to $1400 per week to stay there, but always leave a path of destruction when they leave. They cost me a lot more money than the “workers” in my other, cheaper places that are let year round. I’ll be glad when it’s sold, because every time I go down there, I’m always having to fix something.
cheers
rJars,
Go ahead and buy your holiday house. don;t even think of it as being “negative geared”. That’s like saying when one has a wife or children that they are “negatively geared”. If we put a commodity price on everything, and wondered if it fitted into our plan, we’d never buy xmas gifts or new clothes.
Why are you feeling guilty about getting something enjoyable for yourself? We don’t live in the Depression- enjoy yourself!
kay henry
I always reckon there is a considerable opportunity cost in owning a holiday home. A good little test is to take a good motel room cost in the town you are looking at and divide it into the purchase price. If that isn’t scary then look at all the properties that one can buy with the money and which many tenants will be paying you to own. Next look at the occupancy to make it worthwhile. Are you going to be there every second weekend, school or public hols, xmas etc?. Keen to go somewhere else this time?
Sure there is the capital gain but there is also the maintenance and security. I liken it to a daughter who cannot drive. She needed to be coaxed into the idea of using taxis as she was way ahead of the average motorist who lost 10K or more each year and had rego and insurance obligations before even driving it.
So you too can afford to live/stay at the swankiest digs in any place on earth knowing you can walk away from it just like a cab but in your case some tenants have paid for your holiday.
Its hard I know and we all slip back a bit but the oldest rule of “If it is smart to pay off your own home then surely it is smarter for someone else to pay off more homes for you.” If you have the means to play with an $800K house you have done well. However your target of 10M in 10 years will not happen this way. I agree we only live once so do both. Wait a couple more years and see what the family holiday patterns really are. Then make the choice. And did you say you will only use it “off peak?” That should go down well with the family. Your friends like to go off peak too? All the best – hope that was gentle.
I have always pondered the same thing. My kids are 3 and 4. I am keen on a holiday house and want to negatively gear it.
TO do that I will
a. Make it available all year round, and I will use it when not rented.
b. I was always worried about the capital growth – as they say its a lifestyle issue v investment issue. But the peninsula and the bellarine areas have gone ballistic – so there may not be the worries after all.
c. My parents had a holiday house and sold it when we were teenagers. We did not want to go down there and Mum reckons she had to clean two houses. Its was sold for $25k now its worth around $280k. Now we wish we still had it.
d. as the property will be geared and claimed for tax purposes I propose a cleaner and gardener and mtnce dude can fix the place up and I claim it on tax. I cannot see why that wont work.
e. For $800k you must be talking about Lorne or something.Anyway – my thoughts, when the time is right I will do it. I look forward to further debate.
PS. I prefer the holiday areas of Melb than rural towns and regional centres like ballarat.
I cannot see anything wrong with buying a property for one’s own enjoyment NOW, if that is what one really wants.
If one’s investment plan works it may possibly set back one’s projected end result by a year or even more
but so what ?What’s the difference ?
I’ve got a friend who for years wanted to buy a waterfront property to live in. He is extremely wealthy by most people’s standards.
Unfortunately he approached the purchase of such a house the same way he approached the other properties he bought for investment purposes i.e. by making such low offers that anything he buys is a good buy.
As a result he never finished up buying the house he really craved for.What i am saying is that if one wants to buy something for oneself then go and pay the price required to obtain it.
Pisces
hi jars
heres why a holiday house is a great thing to have.
if its done properly your holidays are for free, you can make money and you can have somewhere to retreat to whenever you want.
holidays are for free! or close anyway. before i bought my holiday house we spent about 5-6 k per year on holidays. no longer. rememeber this 5-6 k is after tax. i have to earn 10k etc etc
secondly my holiday house has appreciated in value by abround 100k in 2 years. 100k is a lot of holidays. 20 normal holidays for me and the price is still going up
therefore by making this purchase i sumize that my holidays for the next 20 years are free!!
thirdly – you can negative gear
fourthly – you can earn an income
lastly – im sick of travelling. everyone i know who are generation x’ers have been everywhere. ive been to 34 countries on last count. my wife similar.
nothing wrong with a place you can set down some good old fashioned holiday roots. and if in ten years time your bored – sell. my kids are gonna grow up surfing and enjoying nature – and so will the old man….
again if yr cashflow allows it – go for it!!!
dont feel guilt – feel happy youve realised its a great way to be even richer! in more ways than one!
I beleive there may be tax implications associated with the plan, but hey I’m no accountant.
A member of my family have rentals, and a resort investment. Not the expensive ones. There are times they go to get away.
These are units that are rented out, but they own and obviously like all these things they are seasonal, they are subject to the management allocating to your unit and there are cleaning fees associated even when you stay.
Management dont liek ti as they miss out on their commission rate.
Now not sure how your holiday home is going to work, you havent really said. Have managers let it for x times of the year, and the other you have? how are you going to work out a contract for this? Cleaning will be part of it.
I wouldnt think you would get full benefit from doing it this way and considering the COST of purchase, I would have second thoughts.
There are ways around it:
buy a cheaper place
buy it and dont rent it or let it out
buy an onsite van instead
buy into time shares, you can go overseas with those too.Personally if I was spending that much, i’d want it all for myself! I think I prefer 3 more properties earning a reasonably great rental income, that was stable and predicatble…than that way….
just my two bobs worth
good luck!
Elves
OK – we bought a holiday house and yes its -ve geared. However we bought it for a couple of reasons, firstly we want to retire to the area (Port Macquarie NSW North Coast) and secondly we had been holidaying there (and paying for it) for over 10 years. Now we didn’t spend 800,000, we bought modestly but the 145,000 purchase has gone to 300,000 in 3 years so I figure thats bought a lot of holidays [
]. We did renovate and had the idea of renting it out but after all our hard work we decided to only let friends/relatives use it. That way it doesn’t get trashed, they usually pay a very small amount which covers the body corporate fees and we enjoy it regularly. Just back this afternoon, 1 flathead, 1 whiting and prawns and blue swimmer crabs – sorry guys none left. So if you can afford it – GOT FOR IT! HGyack,
prices have more than doubled, and in some cases, tripled on the peninsula… if you want to take a punt it’s going to keep going up, and up, and up, good luck… I can tell you from experience the demand for holiday rentals isn’t as strong as some may think. Demand for full time rentals is even worse. We’re about to sell ours at Blairgowrie and ching ching cash in.
cheers
rRichmond.
You say you are selling. Have you had enough of the Peninsula? Are you saying now is the time to sell not buy? I know its taken a long time for the peninsula to grow in price and I expect when interest rates go up and people start to hurt thats the time to buy on the Peninsula as the first thing that goes is the holiday house.
I am not saying now is the time to buy, but when I can afford it I will. And all i really want is to rent it for one week (but available all year) and claim all the interest as a tax deduction.
Hi Yack,
that’s pretty much what we’ve done, but it was bought as my wife’s PPOR when we bought it 3 yrs ago… she lived in it for a month or two, then we made it available as a rental. We now live on 60 acres north of Melbourne, and if we cash in the CG at Blairgowrie, we can clear the mortgage up there. As a bloke with a young family I’m sure you can understand that we think it’d be nice to have no PPOR debt while we’re both 29 before we get started on the kiddies front.
Re: being the time to buy or sell, I don’t know… I’m a believer in Jan Somers’ theory to buy when “you” can afford… it’s just the right time to sell for our particular circumstances.
In terms of where the market’s going down there, the “big” money suburbs like Portsea and Sorrento might take a big hit, but cheaper places like Rye and Blairgowrie might just soften… that’s what a few agents down there have told me, anyway.
by the way, if you’re not getting great CG or holiday rental turnover, that interest money you’re paying is still a pain in the arse to come up with every month… even if it is tax deductible or a good place to go for a holiday… that’s what we’ve found anyway…
cheers
rrichmond makes some good points
a few tips however. in order to make my interest payments the first thing i did was keep 10k in a seperate bank acct. due to the seasonal demand you need to have this buffer and then you just top it up when you get yr rent.
secondly a good way to rent out yr holiday house is a letter drop in yr local area. the ideal situation is to gey 10-maybe 20 families interested in yr house. if these same people take a bit of ownership and you treat them well you can get a client base that will be regular renters and just as importantly they will look after yr house!
]. We did renovate and had the idea of renting it out but after all our hard work we decided to only let friends/relatives use it. That way it doesn’t get trashed, they usually pay a very small amount which covers the body corporate fees and we enjoy it regularly. Just back this afternoon, 1 flathead, 1 whiting and prawns and blue swimmer crabs – sorry guys none left. So if you can afford it – GOT FOR IT! HG
You must be logged in to reply to this topic. If you don't have an account, you can register here.
