Dream weekender or nightmare money pit?

IT’S not uncommon for families to go on a beautiful holiday at this time of year and find themselves tempted to buy a holiday home on their return.

It’s easy to see the attraction of having somewhere to escape to every year for family and friends. However it’s important to consider the pros and cons of this to avoid making a bad financial decision.

Let’s have a look at some of these pros and cons. Pros:

Rent-free holidays for you and your friends whenever you want, for however long you want;

Potential extra income from renting to tenants, along with possible capital appreciation;

Rental income will preferably offset maintenance costs, loan costs and rates;

If you love the location, it may be just the spot to live in retirement;

No more paying holiday rental loadings in school holidays; and

There may be tax advantages by way of interest deductions on lending and associated costs. Cons:

A seasonal location may mean an untenanted property for a large part of the year;

Your perfect location may not be to others’ taste, meaning it may not be attractive to potential tenants;

You might love the location this year and next but you might also get bored with going to the same place every year. It may be cheaper to lease a house than buy one and you can change up the location; and

If you live far from the holiday home you will need to have someone come in to clean and maintain it, change linen etc if you are renting it out. These costs need to be factored in.

If you’ve still decided it’s a great idea, make sure you don’t buy in peak season, keep an emergency buffer of funds to cover unexpected costs throughout the year in the event you cannot rent it out and calculate all your potential costs (take those rosecoloured glasses off).

Finally, like any major financial decision you should seek advice to weigh up the pros and cons and determine the appropriateness and affordability to your situation. That way you can kick back stress-free on the deck of your new place and enjoy the serenity. Sam Stevenson is an authorised representative and credit representative of JSSJ Financial Pty Ltd (ABN55612605437) trading as Edge Advisory Partners, is an authorised representatives of AMP Financial Planning Pty Limited, Australian Financial Services Licensee and Australian Credit Licensee