As I am spending a few fabulous days with my family in Western Australia’s glorious South West region, I can’t help but think about how many people will fall in love with a holiday home here. Summer holidays are typically the time of year when people believe buying a holiday home might also be a wise investment decision.
After all, you will save on accommodation costs, you can get the negative gearing benefits and why wouldn’t the property go up in value – it is such a unique location! Or so we like to believe… Unfortunately, generally speaking, lifestyle and investment don’t mix very well.
Let me illustrate by way of an example why buying a holiday home should not be confused with investing in property.
Doctors and holiday homes from hell?
I have met several doctors who bought a property in either Mandurah or Dunsborough (both favourite holiday destinations in Western Australia) during the property boom years. They paid well over $1m at the top of the market, but during the Global Financial Crisis property prices plummeted, leading the properties to drop a few hundreds of thousands of dollars in value. Prices may never recover to that boom level.
The rental income from the properties is minimal, even on short-term holiday lets, resulting in significant negative gearing. You may think that this is a good outcome because of the associated tax deductions, but the after-tax losses still amount to $20-30,000 p.a. That is money you could have invested somewhere else.
A hefty price tag for an occasional family holiday… Yes, the other argument for buying a holiday home is that you will save on accommodation costs. Given the aforementioned, I highly doubt that.
But what about the capital growth you say?
Let’s have a look at the growth rates of Dunsborough, a traditional holiday destination for Perthites. Please click on the below table sourced from REIWA.
The sobering result: the growth rate is less than the consumer price index over 10 years, not even 3% p.a. Note, of course other areas may have achieved better growth rates.
Conclusion and plan of action
My final piece of advice on doctors and holiday homes?
Owning a holiday home is a perfectly valid and also very achievable lifestyle goal for doctors…if you put in place the right strategies and build sufficient wealth.
Contact me if you would like to start making some tangible financial progress and achieve your personal goals.
I specialise in medical financial planning and coordinating the financial affairs of medical professionals. I have been recognised as one of the Top 10 financial planners in Perth and Australia. I am a Certified Financial Planner and member of the Financial Planning Association of Australia.
As I understand your time is extremely valuable and scarce, I am able to offer flexible meetings times, including outside business hours and during the weekend. I can even come and meet you somewhere convenient, or talk via videoconference on Skype.
My first consultation is free. I allocate up to 90 minutes to discuss your personal circumstances and to establish how I may best assist you. Where you already have an existing adviser, I would be happy to offer a second opinion. I always quote a fixed dollar fee before we start working together.
Please contact me on email@example.com or call me direct on 08 9381 2704. You can follow me on Twitter @YvesSchoof or connect with me on Linkedin to receive new articles.
Yves Schoof and Affluence Private Wealth are Authorised Representatives of Synchron, AFS Licence No. 243313. The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.
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