What to do with 300K

J

johnnyboy1

Hi

I have just under 300K which I want to invest in property, I was considering holiday rentals to ensure a larger return in the short term while counting on capital growth in the long term.

Any advice on the following would be welcome:

Do I invest all the money into one larger property or purchase a smaller house and apartment.

Should I be going for interest only repayments even though I may be able to afford to pay of the capital

Also any idea on the return on holiday rentals

I am new to this so any advice would be welcome ;)

Thanks
John
 
Its anyones guess on what you "should" do with the money and you will probarbly get alot of differing answers but I suggest NOT buying holiday lets thats for sure.

You have a substantial deposit and could even buy a cheap property or two cash if you so wish.

I would personally be buying in the higher price bracket in a good growth capital city area as I know population growth will certainly heat the market making the investment a very good quality one indeed but then again, its totally p to you and you should think long and hard about the issue.
 
want2bewealthy said:
Its anyones guess on what you "should" do with the money and you will probarbly get alot of differing answers but I suggest NOT buying holiday lets thats for sure.
Click to expand...

Thanks for the advice but what's wrong with a holiday let, i was considering one at the higher end of the market with a hefty homeloan and the rental income should service the debt.

I am new to this so I will obviously require further reseach!
 
The Y-man said:
Hi John,

How do figure this?

Cheers,

The Y-man
Click to expand...

Well say i go for a 750K property the homeloan repayments would be in the region on 3700 per month, a holiday rental in the coastal suburb I was looking at should get between 1000-1500 per week for off peak/peak. Given a number of vacant weeks per year the yield would be much higher than a longer term rental.
 
johnnyboy1 said:
Thanks for the advice but what's wrong with a holiday let, i was considering one at the higher end of the market with a hefty homeloan and the rental income should service the debt.

I am new to this so I will obviously require further reseach!
Click to expand...

Hi Johnny,

There are many downfalls associated with holiday let properties such as
very low growth figures,
high yield [which is the only real initiative] but often attracts much high fees
usually no room for improvement [all rooms must be left the same]
no diversity, most rooms are the same
low land content
and more

These properties are attractive to most investors and high yielding properties usually sell very fast but would be more attractive for an older person for cash flow [allthough sometimes less experienced investors are caught not realising the high fees diminishing this cash flow]

There are some on this forum who like the idea of this type of investment and that is o.k if you know what youre doing but I think a new investor should be looking for high capital growth not just cash flow that will actually be pretty low after all fees.
 
johnnyboy1 said:
Well say i go for a 750K property the homeloan repayments would be in the region on 3700 per month, a holiday rental in the coastal suburb I was looking at should get between 1000-1500 per week for off peak/peak. Given a number of vacant weeks per year the yield would be much higher than a longer term rental.
Click to expand...

How may weeks vacacy would you expect?
Expecting furnished?

Cheers,

The Y-man
 
johnnyboy1 said:
Well say i go for a 750K property the homeloan repayments would be in the region on 3700 per month, a holiday rental in the coastal suburb I was looking at should get between 1000-1500 per week for off peak/peak. Given a number of vacant weeks per year the yield would be much higher than a longer term rental.
Click to expand...

How many weeks vacancy do you figure you'll have, and what are you basing this on? What do you figure the management fees to be, or will you be advertising to rent it out yourself? What sort of net yield (after all fees, vacancies, etc but BEFORE interest) do you think you'll get?

For 3,700pm, you're looking at a loan (interest only) of $570,000 or so. Is this about right?
Alex
 
Regarding the IO or P and I repayments,

Theres a few ways you could go about this, you could buy a cheaper property in cash, therefore your long term profits are large both in rent and capital but there a virtually no tax benefits [which doesnt have to be a bad thing, were in it for a profit arent we?]

Or you could buy a few properties using IO, skyrocketing your long term profits and keeping your deductible tax incentives,
remember, it is sometimes wise to stay negatively geared because you are maximising profits [owning more properties] and keeping more of your money in tax, tax deductions are a great tool for investors, think about it, how much money long term would you approximately make with one fully paid out property in say.. 20 years? [including paying out tax]

How much could you make if you owned two or three with your deductions in the same amount of time?
 
It would be a good idea to talk to a few of the local agents in the area where you are thinking of buying, and ask them what the expected vacancy rate for holiday rentals would be for a property similar to what you want to buy.

They will also give you a good idea of the costs and maintenance etc. Don't be surprised if it is at least 20% of the rent; more like 40%. The agent fee alone will probably be 20% as there is a lot of extra work in a holiday rental than there is in a permanent rental.

One of the hidden costs is the cleaning that needs to be done in between tenants. If you only have someone in for a w'end, it is the same cleaning bill as someone who is there for a week.

We looked at doing it with our house while we are over here in the States, and admittedly we are in a more seasonal holiday destination, but by the time we factored in the vacancy and all the costs, and even though the weekly rent was much higher than a permanent tenant would pay, it was better to get a permanent tenant in in the long run.

In the end, our window of rentals was Christmas, Easter and maybe the school hols over winter.
 
johnnyboy1 said:
Well say i go for a 750K property the homeloan repayments would be in the region on 3700 per month, a holiday rental in the coastal suburb I was looking at should get between 1000-1500 per week for off peak/peak. Given a number of vacant weeks per year the yield would be much higher than a longer term rental.
Click to expand...

I don't have any experience with holiday rentals, so I'd just throw out a question to those that do have experience with them:

a $750k holiday rental property renting the entire year at $1250pw (split the difference of on/off peak, but this assumes 6 months is peak time pa) gives a yield of about 8.6% - and this assumes that is rented out every week of the year, never left empty for a week.

Doesn't that seem a low return considering you have to provide furniture, cleaning services, pay managment fees etc and are assuming a 0% vacancy rate all year which I would consider unlikely??
 
I know that there are some investors that like holiday rentals, but to be honest, if it was me, I would stay clear of it. To me a holiday rental is a high risk proposition & add to that I would want a much higher yeild to compensate.

Just my 2c.
 
I agree with Skater. Friends of ours owned a holiday rental apartment at Alexandra Headland (QLD) for a number of years - the occupancy rate and overall returns were abysmal, and they sold it because they were sick of having to put their hands in their pockets far too frequently.

Cheers
LynnH
 
Yes, the intial ROI is not great but surely the higer rental income will service the debt as oppose to having to subsidise the repayments on a longer term rental basis. While I will not be making a great deal of cash in the short term it will keep the wolf from the door of that property.

I do not anticitpate any management/advertising fee's as the property will be managed and promoted online by me/ my wife.

The alternative would be to purchase a lower cost property which would have lower longer term capital growth. Doesn't seem to make sense to me but I am new to this game!

Thanks Folks
J
 
I really think a nice Ferrari would be had for 300K...its a lot less hassle too...:)

The question is, are you interested in making long term CG, or cf+???

Is this 300 a loan, or is it cash? If its cash, I say go for cf+ by buying something that will maximise your return...so not a unit/apartment because of the extra body corp. fees...

My 2 cents..good luck!!!:)
 
johnnyboy1 said:
Yes, the intial ROI is not great but surely the higer rental income will service the debt as oppose to having to subsidise the repayments on a longer term rental basis. While I will not be making a great deal of cash in the short term it will keep the wolf from the door of that property.
The higer rental will only service the debt better if you can get the bookings.

I do not anticitpate any management/advertising fee's as the property will be managed and promoted online by me/ my wife.
Have you checked the vacancy rates for similar properties that are self promoted. You may be surprised by the amount there are & the vacancies you will have.
The alternative would be to purchase a lower cost property which would have lower longer term capital growth. Doesn't seem to make sense to me but I am new to this game!
Why do you assume that a holiday rental will get good capital growth?
Thanks Folks
J
Click to expand...

Sounds to me like you are trying to justify this purchase to yourself. Take a step back & look at all scenarios before you commit. After you have thoughougly checked out all the pro's & con's make your decision.
 
I agree with Skater. That back of hand calculation I gave you was best case scenario assuming it was rented out 52 weeks per year and didn't take into account any expenses (all unlikely/impossible). Only then would it pay for itself, and that's only just. As soon as you throw in a vacant week or 3, and the cleaning/furnishing etc. - there goes your neutral investment and you'll have to start kicking in cash anyway.
 
I'd spend 150k on a dream car (you've earned it) and 150k on deposits for several properties.. thats just me though ;)
 
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