Master Class:

Holiday Homes as an investment strategy

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Master Class:

Holiday Homes as an investment strategy

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Master Class:

Holiday Homes as an investment strategy

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Treat property investment as a business….

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Master Class Series

Portfolio solutions master class

• Designed to share knowledge.

• Desire to provide extra value to our clients.

• Great for both new and experienced investors.

• Plenty of opportunity for Q&A.

• We will run these regularly throughout the year, and sometimes involve our partners to provide additional insight.

In this session, we will cover:

• Why invest in a holiday home

• What are the benefits and risks of investing in holiday homes?

• How to understand and deliver to market needs

• How to analyse a potential holiday home investment

• How to negotiate and purchase a holiday home investment

• Insurance, legalities and tax issues to be aware of

• How to go about the management & operations of the home

• How to get the most out of your marketing

• How to make owning a holiday home investment simple

Holiday homes master class

Holiday homes as an investment strategy

What is the holiday home strategy?

• Renting out the property to holiday makers as a ‘holiday let’. Can be homes, apartments or townhouses.

• Generally located in locations close to holiday destinations: sea change, tree change and local attractions.

• Plenty of ways to advertise a property like this and an opportunity to build a business in its own right.

• Your property ideally needs to stand out and be attractive to the ‘get away’ crowd.

• Around 2 hours drive from the local CBD is the magic number.

Holiday let – how it works

• You furnish the house and supply everything you might need in an ordinary house – think appliances (large and small), cutlery, plates, beds and televisions etc.

• You might provide a linen service, as well as other perks such as Wi-Fi and Pay TV.

• Tenants will book for short stay periods, with peaks achieved around the holidays.

• You need to attend to items such as cleaning and gardening to keep the property ‘holiday ready’.

My own holiday home journey

Background to our journey

• We’ve been investing in property for over 10 years.

• Started out small, targeting cashflow neutral ‘renovator’ type properties.

• I always loved the idea of a family holiday house.

• Found a small location that ‘no one knew of’ and houses were amazingly cheap!

• What if…

Our first holiday home

• Seaspray is a small fishing type village in Gippsland, Victoria.

• It was only 2 hours drive from my home in the Greater Melbourne, South Eastern Suburbs.

• An old run down, tired family holiday home.

• Needless to say, a slow property market and the property had been on the market a long time.

• I thought ‘if we could cover half our costs through holiday rental...’

Beach Creek Cottage was born

• Purchased for $152k.

• Full renovation top to bottom for around $15k (including tools!).

• In some cases a complete rebuild.

• Listed the property on website November 2011. (It’s #1 of 8 in the suburb and #21 of 341 properties in the region).

• Property delivered $9k in first part year of operation, $11k in year 2 and $13.5k in year 3.

• On track for $15k this FY.

• #TIP: Holiday home revenues grow stronger over time.

Let’s go again…

• After a strong first 2 years in operation, we wanted to go again as the cashflow was growing.

• We targeted the 2hr drive from Melbourne to keep the property easily accessible from our home. Ended up in Inverloch, again in Gippsland (2hrs from Seaspray).

• We found ‘The Clubhouse’, sitting stagnate on the market. It was already an occasional holiday let in peak periods (although run down and not doing very well).

• With the information from Real Estate Investar we started negotiating.

The Club House

• Purchased for $352k, with the lot!

• Minimum cosmetic renovation for around $10k (including new furniture and flooring).

• Listed the property on website November 2012. (#2 out of 341 in suburb and #11 out of 2,155 in region).

• $17k in year 1 of operation beating previous $15k record of last owner.

• $29k in Year 2.

• On track for $35k this FY.

• #TIP: Don’t spend if you don’t have to!

Beach Holiday Houses was born!

• We wanted to leverage the audiencesfrom both locations.

• Quickly, our holiday houses became abusiness.

• We had to look at howto market and run the the businesses as best we could, part time.

#TIP: Treat allinvestments like a

business.

Expansion

• With Inverloch a cashflow success, we wanted to repeat the model.

• We again targeted the 2hr drive from Melbourne and wanted to find a house that could accommodate families on a budget.

• We again found a run down property, but in a great location.

• Thanks to the Real Estate Investar tools I knew what the seller paid, how long it had been on the market and the true value of the property.

• We purchased for $390k and requested to retain various items of furniture.

River Beach House

• $30k renovation (including all furnishings) part time over 24 days.

• A lot of maintenance issues.

• Revaluation for an additional $100k in 6 months time as a result.

• Listed on website in October 2014. (#5 out of 233 and #41 of 3,201).

• On track for $30k this (part) FY.

• #TIP: eBay is your friend

What are the benefits and risks associated with owning a holiday let?

The benefits of holiday lets

• An opportunity to make a business out of your asset.

• Generally higher yields vs. traditional renting.

• Better depreciation due to the additional furnishings.

• You can get access to it yourself in most circumstances.

• Great way to purchase a future family holiday home.

• Could be a retirement plan.

The negatives of holiday lets

• Involves a lot of management. This will cost you money and/or time.

• Your tenants are there for ‘a good time’, ‘all of the time’.

• Generally the properties will be a long drive/flight from where you live, so harder to check, monitor and/or manage directly.

• More stuff to manage; cleaning, gardening, furniture, bonds and keys.

• If you get it wrong, you may have a property that takes up your time, doesn’t grow in value and is negative cashflow.

How do you find the right property for a holiday let?

Why are you wanting to buy?

• Is it for you and your family now or in the future?

• Is it for cashflow?

• Is it for capital growth?

• Is it to diversify an existing portfolio?

Where are you going to buy?

• The why defines the where:

• If it’s for you and your family to use, you need it accessible and convenient to where you live.

• If it’s for cashflow, you need to identify the best possible renting market.

• If it’s for capital growth you need to look for ways to improve the value and/or areas which are likely to grow in the future.

• If it’s to diversify, you need to think about how the property will work for you, what’s low risk and what makes sense relative to your portfolio.

5 key rules for identifying the best locations for higher returns1. Stay within 2 hours of a CBD.

2. Target areas with year round attractions and activities.

3. Target areas where people are likely to want to stay for up to a week at a time in peak, or weekends in off-peak.

4. Make sure your location has a pub, a café, a bakery and a community playground at minimum.

5. Get as close to the local attractions and main street as possible, for both tenancy and security reasons.

Before you buy

Understand the market

• Visit the target location.

• Visit the local attractions, main street and facilities.

• Visit the competitors.

• Research online portals.

• Research information kiosks.

• Book a stay with the best one (if you can!).

Identify the best fit for the market

• Establish the profile of your average tenant.

• Visit the areas they are likely to frequent, to better understand who would visit.

• Ask the locals – including employees at local attractions and shops.

• Once settled on who, then review what would be the best fit to accommodate that tenant.

#TIP: I like to go for an average property for the masses.

Identify the best fit for you

• Think about why you want to buy the property

• What are your current needs?

• How often can you attend to the property?

• What will your future needs be?

The buying process

Run the numbers

• Study the rental rates of your competitors.

• Study the rental rates of local ‘professional’ accommodation providers like hotels and serviced apartments.

• Understand what your target tenant might pay and what they would expect in return.

• Set your rates accordingly. You can go aggressive early and increase them over time.

• Complete detailed analysis to understand the true cost of owning a property.

TIP#: Some properties are just better to rent when you occasionally use them.

The costs of holiday lets

• In addition to standard rental expenses, like water discharge, maintenance, rates and repairs, you can also expect;

• Electricity.

• Gardening.

• Cleaning.

• Management & payment processing.

• Furniture replacement.

• Linen in some cases.

• Gas bottles, firewood and other consumables (if supplied).

Property Analyser: purchase costs

Property Analyser: rent & expenses

Property Analyser: tax & market

Property Analyser: results

Know all you can about the deal

• Why is the seller selling?

• Does the agent know of other holiday rentals in and around that area? What could you expect as a return?

• What would the property rent for as a standard rental?

• What did the current owner pay? When?

• What similar properties have sold and for how much?

• How long do these properties sit on the market?

My Valuer: understand the property

My Research: understand the area

Negotiate

• Usually these type of properties are on the market for some time. You can push for discounts with the right info.

• If they are currently used as holiday rentals, all of the furniture is in play.

• Even if not, if there is something that would work, try to work it in to the deal.

• Try to work in advanced access if required, this needs to be in the initial negotiation terms.

• Be aware of the markets peak times. You don’t want to miss out. Set settlement date to suit purchase and possibly renovation time required.

• #TIP: Don’t buy in peak season.

Setting up the property

What does your target tenant need?

• With the research already done, organise the property to suit your tenant.

• Always look at ways to expand your audience. Can you add a playground, extra car accommodation, ease of access etc?

• Add furniture to suit.

• Organise bedding (if supplied).

• Make gardens manageable.

• Keep the house clutter free.

• Make sure you have cupboards and suitcase stands available.

Management strategy

• Will you manage the property?

• Appoint a local agent?

• Appoint a holiday specialist?

• Get a neighbour?

TIP#: Build a team if youcan’t run it yourself

Insurances, legalities and tax

• Once set up, get a quantity surveyor in to do a depreciation schedule. I have always used Washington Brown, our partner to complete mine. This will return big dollars in most cases.

• You need insurance. Make sure you have the right kind; standard landlord insurance doesn’t cut it. You need one that caters for holiday lets.

• You will need to protect yourself. Terms and conditions of stay will be needed at minimum and tenants will need to agree to them.

#TIP: Get professional advice!

Set your rental rates

• There is a balance between high yields and high occupancy.

• Use minimum night stays to your advantage, but don’t overdo it.

• You want to maximise your return, but don’t put off the spontaneous getaway customers.

• Start off lower than the competition to gain momentum.

#TIP: Go average for the masses.

Launching the business

Operations

• Check in/check out

• Service inclusions

• Cleaning

• Maintenance

• Upgrades

• Reporting

• Tax time

#TIP: Keep a buffer account for unexpected repairs and maintenance

Portfolio Tracker & Xero

Marketing

The main avenues:

• Onsite at your property; brochures, booklets and signs.

• Your own property website.

• Accommodation and holiday websites.

• Social media.

• Printed collateral for information kiosks, as well a other providers who might promote you.

Technology

Entirely optional, but these can make your life easier;

• Online website systems: give it a name and make it stand out.

• CRM systems.

• Automation systems

• Email & marketing systems

• Use Google wisely: list your business at minimum.

Stay on top of it

Post launch

• Survey your tenants.

• Be prepared to upgrade and improve items.

• Monitor the area, and the competition.

#TIP: Visit the property yourself, regularly.

How to make it a success

1. Keep the audience as broad as you can.

2. Research the competition.

3. Aim for good investment growth and high yield/returns.

4. Provide things like internet and pay TV.

5. Easy access to lakes/beaches.

6. Make it a home away from home.

9 tips for the best holiday let results

6. Think about who will use your property and aim to meet their needs; think toys, playgrounds, computer game consoles, tea and coffee, tea towels and bathmats.

7. Stay on top of the numbers.

8. Some factors such as local infrastructure may mean its easier and a better return to rent permanently as a short stay style property.

9. Update and upgrade it as you can.

9 tips for the best holiday let results

Always treat your investmentlike a businessAnd remember tenants are ‘customers’

Treat your investments like a business

• Have a plan

• Have goals

• Businesses have costs

• Businesses manage risks

• Businesses are profitable

Create a business plan!

Set targets & goals

Measure results

Monitor your property

Make changes as needed

• Review your goals and targets.

• Make adjustments to your plan as needed.

• Don’t be afraid to make changes to rents, management, the property or method of renting it out.

• Monitor your investments closely, no matter what your property management strategy is.

• Don’t just wait for tax time to see how much tax you made or lost.

Next steps

• Think about if a holiday let might work for you.

• If you have existing property that might be suitable, consider how it is managed. Could you do better as a holiday let?

• Think about the what, where, who and why?

• Use tools like Investar Search to locate potential properties for sale and quickly analyse the numbers.

• Use tools like Property Analyser and Portfolio Tracker to really understand how an investment might stack up.

• Use tools like Portfolio Tracker & Xero to manage them ongoing.

What can I do next?

Plenty of resources available

Take the 21 day free trial at www.realestateinvestar.com.au

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Questions?

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Thank you!