Holiday homes: finances aside, the pros and cons come down to a generational outlook

It's summer time, so longingly looking into estate agent window displays for shacks for sale up and down the coast has been principal property pursuit of many.

But buying? 

Before dashing off to Paris for Christmas, Pitcher Partners partner David Staples, compiled an analysis, counselling would-be buyers to do their sums.

Rathering than offering sanctuary and status, the reality could be a financial black hole.

“It’s generally a lifestyle choice rather than an investment,” he suggests. 

Our commentators Jonathan Chancellor and Margie Blok look at the pros and cons of owning a holiday home and find it's actually quite generational.

HE SAID

For starters, I look at holiday homes as an indulgent compulsory savings endeavour, building wealth through property for retirement.

Maybe rather than working from home, middle aged senior executives actually take their laptop workload to their coastal retreat - and their staff  aren't the wiser.

And even an essential escape from the city for the weekend - especially when there is adjacent demolition and construction every Saturday morning for years on end in the neighbourhood.

Yes it's rented out to others at the peak holiday times, but having use of it through the decades means having all those memories of fun family holidays. Yes there will be a period when the kids find it daggy, but they will be back. The pets will always come with you though.

For many it's most likely a home-from-home with the eventual savvy sea change shift less stressful than for everyone else.

So what is the main downside of this seemingly good personal investment?

Some coastal property owners complain that they spend all their time fixing up and maintaining their holiday homes. Yes maintenance on the coast tends to be higher due to the proximity of the sea, but just think supply and demand ensures that sea view coastal properties fair better than most when it comes to holding, losing or improving their value. So find the great local help.

Of course, coastal properties with easy access to schools, hospitals and shopping centres have quicker sale times if you do need to exit.

Rental returns in many coastal spots can cover most costs - maybe all up around eight weeks a year with demand then plummeting during winter which is when the owner can enjoy those blustery southerlies.

Typically you'd expect it to provide a net annual yield of no more than 2 per cent, even if commanding weekly rents of $2000 or more in peak periods. Ofcourse there's always the chance of using the income for a quick ski at Whistler while the tenants are swatting away the beachside blowies.

But beware the expectations of holiday guests has risen in recent times so household items once considered extras such as air-conditioning, a dishwasher and a modern gas barbeque are now viewed as essential. Not sure that the Nepresso machine and adequate supply of capsules is yet mandatory for the vacation crowd.

Margie may consider it a con, but being in one location for vacation year after year can be a delight. It's a safe place, boring and routine - but with a good book selection, a pack of cards, scrabble game and spare clothes with a musty odour - providing just the necessary break from the hustle and bustle of the city.

Ideally, its driving distance from the city should not be much further than two hours or so.

SHE SAID

Owning a holiday house can be more a curse than a blessing given the ongoing costs and obligation to use the place.

Who wants to constantly return to the same holiday spot when inexpensive travel deals offer a wide range of local and overseas destinations with hotels and resorts providing interesting and relaxing holiday options and staff to take care of everything?

Heading off to a holiday house with family or friends is a nice idea, but in reality it involves a daily grind of cooking, cleaning and laundry, as well as provisioning with food, booze and other supplies from a local shopping centre.

During the peak summer season, these shopping experiences can be truly hideous at popular holiday spots (especially those on the coast) crowded with hoardes of holidaymakers, often with screaming children in tow.

According to David Staples from the accounting firm Pitcher Partners, the money spent on an average holiday house could pay for more than one week a month – or about 90 days a year – in a quality hotel.

The AFR Weekend noted Staples' sums of owning a holiday house with $500,000 mortgage repayments at 4.9 per cent – the lowest in a generation – would actually total about $24,000 annually, the equivalent to about 70 nights a year at a holiday resort costing $350.

Staples' colleague Jordan Kennedy says that means the buyer would need to spend their 20 days of annual holidays, 10 public holidays and 19 weekends at the holiday home to justify the cost. And when you add in another $30,000 for rates, maintenance and other costs, it pushes close to 90 nights a year.

Also, land tax on a holiday house can be a massive burden, particularly in pricey areas on the Mornington Peninsula and on Sydney’s northern beaches. In these areas, annual land tax on a holiday home can amount to tens of thousands of dollars.

During the 1960s when air travel from Australia, on Qantas and BOAC’s Boeing 707s, was expensive, owning a holiday house was more appealing than it is today. For our parents’ generation, holiday houses were more affordable – but now, when you take costs into account, I think there are better holiday options.

One trap to be aware of with a holiday home is any ownership in a self-managed superannuation fund. Anthony Keane, editor of Your Money, reported recently in the News Ltd papers, that strict rules around self-managed super prevent property owners from gaining any personal benefit from their fund assets until retirement, and there are nasty tax penalties for breaking the rules.