I like to go on holidays…but should I buy a holiday home instead?

With the summer break quickly approaching, we will see a lot of people taking time off to enjoy the some R&R. This relaxing time off also provides one with a unique opportunity for reflection. One question which might creep into one’s mind is “ I go on holidays each year, but should I buy a holiday home instead?”  This question possibly resonates more when you are at a location that is inspiring and you find yourself really unwinding and enjoying that well deserved break. You then might find yourself starting to crunch some basic numbers and saying “Wow if I spend X amount on holidays each year….could this could go towards a holiday home instead where I would at least get something back at the end of the day in the form of an asset?” The interesting part about this question is that it consists of a part financial decision, but also a part lifestyle decision.  It is really like buying another home for you to live in, so part of the decision is around finance like affordability, location for potential capital growth, and price point.  The other part of the question is around Iifestyle, such as whether you are comfortable in the property and if the area makes you feel relaxed etc. Now it is easy to crunch the modelling on the financial component, but the more difficult part is how you quantify the dollar figure on the lifestyle component.  This is when the modelling equation starts to get grey. The other difficult consideration is will the property be rented out by holiday renters when you are not using it?  This can be a complex answer in that this starts to impact on tax deductibility of the interest costs, and running of the property. There are also moments of time in your life where you might use the holiday house more, and other periods when the weekends are just so chocked full with commitments at home or work that the potential for spare time to use the holiday house is very sparse. So if you are venturing down this path, you need to understand the true cost of the decision and so the financial modelling is very important.  Life changes fast and so do demands in one’s life, so if you do decide to make the potential purchase for a holiday home, it needs to be flexible to meet your ever changing lifestyle demands.  So for example, this could mean that if you don’t have time to use the property, you might need to ensure it can be rented with little fuss. Like most financial decisions, it is important to consider the risks associated with the purchase and also the opportunities it may bring both financial and for your lifestyle. Before you jump into making any big decision, it is important to speak with a qualified Financial Planner and we would recommend that you speak with our friendly team at AJ Financial Planning!