holiday homes & IP

[IanF]

From: Ian Findlay


Hi All,

Hope everyone enjoyed the long weekend we had here in QLD.

Anyway we are toying with the idea of buying a holiday unit which would go into holiday pool with onsite managers down the Gold Coast.
The idea being that we rent it out to holiday makers for 5 years or so then repay the mortgage on it and use it ourselves as a holiday home.

Anyone see and disadvantages in this? We see it as a combination lifestyle/investment with the emphasis more on lifestyle down the line.

This is unlike our other IPs, we are in unfamiliar territory and need as much advice as possible.

Any one have any experience with holiday homes?

Any advice gratefully received as usual,

Ian

 

[Ric1]

Reply: 1
From: Ric1 .


Hi Ian,

I have mixed feelings about such an investment. We have a unit on the coast north of Brisbane, bought in '98. Its been an interesting experience, and I am happy to share it with you, and others who might consider the same.

First of all, the income is very seasonal, winters are not much good, and extended periods of bad weather impact on returns greatly. This wouldn't happen with residential property, of course.

The unit is one of a number in a complex, managed on site. The management costs are more than I would have expected. I knew about the 12% commission, but the thing that has disappointed us are the cleaning charges after each tenant - if a tenant stays just one night, the cleaning charge ($71) eats up most of the tariff. Its better, of course, if a tenant stays for a week or so, because the cleaning charge is not much more.

Also, with a pool, etc, body corporate fees are relatively high, and you have rates on top of that. Returns in summer are good, with about three months being very good - but they have to tide you over the winter months.

The other plus is that depreciation is higher than with ordinary residential property, since there is a furniture package with the unit, and its done wonderful things to my tax bill. I'm not sure about capital growth yet - its appreciated a little bit, according to a valuation I had done last year, but overall, it hasn't been an experience that I would repeat - our residential unit in Brissie has performed much more steadily and predictably, and that's the strategy we intend following in the future.

Being from interstate, we do enjoy staying in our holiday unit from time to time - but don't forget, you can't claim any depreciation, etc, for the time you are staying in it, because is not for rent.

Hope this helps!

Ric1

 

[WebBoard]

Reply: 1.1
From: Seagull .


Hi Ric1 and Ian,

We too have a holiday apartment in Queensland and I read Ric1's post with great interest.

Initially we purchased the unit intending to rent it out and told the Estate Agent that. However, when we entered the building to take possession of our unit after settlement we were presented with a Contract by the Resident Caretaker who tried to bully us into signing it there and then. Of course, the red lights began flashing and we sidestepped that.

Our furniture arrived and as we settled in the Manager didn't leave us alone... that bothered us. We felt that there was a battle between her and us for control. When we read the terms and conditions of the Contract we decided that we wouldn't rent it out. Fortunately, we don't need the income. We told the Manager of our decision giving acceptable reasons, such as we couldn't bear anyone else to use our furniture, etc. etc. (and there is truth in this). She had a tantrum and that was not pleasant. We could understand that she was disappointed but after all, it is our apartment.

Since then my husband gets on OK with her; she is withdrawn with me. She is an excellent manager and is the representative of the Body Corporate, however, and we trust her fully. She goes the second mile with regard to problems with the building itself.

The thing about the contract that bothered me most was that there was a clause (recalling from memory I don't have the contract with me just now) stipulating that if we sold the unit the new owner was obliged to honour all rental bookings made by the caretaker for the following ?12 or ?6 months. I realised that I would be in the position of having to pay the caretaker out on this if there were bookings outstanding after the settlement date of the sale if the new owners were not intending to rent it out.

I would be most interested to hear of other people's experiences.
Seagull.

 

[simonjulie]

Reply: 1.1.1
From: Simon and Julie M


Hi all
I am just in the process of purchasing a unit on the Gold Coast so this subject is of great interest to me. After considerable research we decided to buy a unit without an onsite manager. We wanted a good return on investment therefore wanting to keep costs down. We have decided against holiday letting and are happy with the rent we will get for permanent letting. If you are looking for tax benefits via depreciation you can certainly claim more for holiday letting but you also have much higher costs. I consider permanent letting to work out a better return with much lower costs and lower vacancy.
Have you considered that you can still use your unit as a holiday home in between permanent tenants? You can offer six month leases and use it yourself at the end of each term. It may not be as flexible timewise but you can still have fun with it without it costing you so much.
Good luck.
Julie

 

[WebBoard]

Reply: 1.1.1.1
From: Garry T



Hi Julie

Are you intending to rent it out fully furnished? Otherwise it will be empty when you want to use the property at the end of the 6mth lease periods.


Garry

 

[Simon]

Reply: 1.1.1.1.1
From: Simon .


Might be false economy to not renew a good tenant cos you wanted to use the place for a week.

Better to do an inspection trip and stay in a hotel!

 

[simonjulie]

Reply: 1.1.1.1.1.1
From: Simon and Julie M


HI all
I suppose the the bottom line is .
Is it for business or is it for Pleasure.
So if you can develop a strategy to do both you are laughing.
Simon

 

[simonjulie]

Reply: 1.1.1.1.1.1.1
From: Simon and Julie M


Hi Garry & Simon
We are going to rent our unit partly furnished. It will have no beds. So when our family come to stay we will have to bring camp beds etc and rough it a bit. All part of the adventure!
If we have the tenant from heaven in there - yes we will leave them there and stay somewhere else.
As Simon (my husband) eluded to - Is it possible to mix business and pleasure? The answer is YES if know when to be firm and when to be flexible.
Julie

 

[WebBoard]

Reply: 1.1.1.1.1.1.1.1
From: Seagull .


I am with you here Michael. I have managed my rental properties for the past 30 years and have never had a tenant from hell: I choose carefully and build relationships with tenants making sure they are well looked after and respected... I go the 'second mile'. I find then that the tenants look after me and my property. I have some lovely stories to tell.
Warmly,
Seagull.

On 5/9/01 10:47:00 AM, Michael Croft wrote:
>Hi Julie,
>
>I confess I don't have a
>holiday rental IP, although
>this is about to change. We
>have a holiday house on the
>south coast NSW, which we will
>start to let out soon.
>
>Agents have suggested $1000 pw
>peak and $700 pw week shoulder
>and $500 low season, they want
>15% and a cleaning fee for
>their efforts but no letting
>fee. We have had it for our
>exclusive use 'til now. I can
>hear TW now " you've got a non
>performing asset!! you idiot!"
>Oh well, lifestyle counts for
>something.
>
>Was interested in your
>comments on 'the tenant from
>heaven'. I am touching wood
>as I write this but, all our
>tenants are great. When I
>talk to any of them I have my
>firm but fair hat on and it
>works. Never understood the
>adversarial model which
>creates the tenants from hell.
>
>regards, Michael Croft

 

[IanF]

Reply: 1.1.1.1.1.1.1.1.1
From: Ian Findlay


Hi all,

Thanks for all posts both within the forum and privately. We've decided to put the idea on the back burner for now.

We were concerned that there were too many unanswered questions: how much income, dependant on someone else (manager), unknown expenses etc, variation in weather etc.

Most responses have suggested that we keep business and pleasure separate. We were concerned that we were falling in love with the idea of having a holiday unit that someone else (tenant and taxman) were paying for.

We are now thinking along the lines of a similar townhouse but with permanent letting.

Ian