Happy New
Year and welcome back to wisewomen
for 2013. Apologies for being irritating if you are back at work, nose to the
grindstone, but I am typing this from a sunny balcony overlooking the Pacific
Ocean somewhere on the northern beaches of Sydney. I'm almost having a Virginia Woolfesque moment
dreamily tapping away as the ocean rolls along in front of me. Ok, not quite
Virginia Woolf but you get my drift. I hope I've painted a picture for you. I
have rented a friend's beach house to eke out the last of the summer holidays
before my mind turns to "back to school" and all the organization and
activity that entails. I'm doing, beg your pardon, my eldest son is doing his
HSC in 10 months so anxiety levels are a little bit high. But it feels like I'm
doing it, you know?
Anyway,
as I walked Louis the cavoodle this morning I was experiencing a bad case of
beach house envy. Who ARE these lucky so and so's that can have these divine
homes perched on hills with ocean vistas? It got me thinking whether I (if I
had it) would plough my dollars into a sea change abode.
Property
is such an emotive asset class, particularly individual residential properties.
Most people get very attached to their homes for obvious reasons but many
people love building a portfolio of apartments or houses as the basis for their
financial security. Sensibly done it has been a very successful way to grow an
asset base that can provide you with an income to live off plus, for those with
a renovating bent, the enjoyment of adding improvements and personal touches to
undercapitalised abodes can be very satisfying. The tangible nature of property
is so appealing to us all especially when the GFC has wreaked havoc on share
performance. Many people are fearful and cynical about the stock market's
inherent volatility. But the property vs shares argument is a can of worms that
I'm not willing to open at this point. I'll save that one for another time.
Strictly
speaking your financial planner won't include your principal place of residence
as a financial asset because it does not produce any passive(investment)
income. One day it may be a financial asset for your children when you are gone
but it's best to think about your net worth excluding your home.
Beach
houses and hobby farms are where it becomes tricky. As with all property
investments they are subject to the vagaries of the property cycle with its
attendant peaks and troughs. Even more so with these types of lifestyle assets
because when times are tough they are generally the first to go. Unravelling
individual property purchases are cumbersome and expensive(think stamp duty and
agent's fees) especially if there is selling pressure or an absence of
potential buyers. This highlights the importance of doing your homework on
prices before you purchase however even the most savvy can get caught up in
auction fever when the dream of strolling to the beach or planting a bespoke
garden is playing out in your mind.
Land tax
can be a killer for owners of second properties but it's not the only cost that
has to be absorbed. Repairs and maintenance, rates and taxes, they all add up.
Running two homes is not for the faint hearted. Yes, you can rent it out but
often the best rents are achieved smack bang in the middle of when you want to
enjoy the lifestyle benefits of ownership. It's a rare property of this type
which is booked solid throughout the year let alone all holiday periods. A
money making venture it ain't as far as rental income is concerned. Add in
interest on loans and you will be squarely in negative gearing territory. Good
for some tax benefits but many people overlook the fact that negative gearing
means you are making a loss on the investment.
There's
non-tangible considerations too. Are you the type of person who likes to go
back to the same place year after year? You feel obliged to go there as much as
possible to justify the amount of money you have locked away in it, missing out
on visiting the latest hot spot destination or experiencing new sights, sounds
and smells of this big wide world of ours. They work out how much money they
could spend on some glamorous resort where they don't have to worry about food
shopping and cooking meals for hordes of teenagers and their mates. If your
property is more than a couple of hours away it makes it an unrealistic weekend
break when you add in travel time. Long weekend traffic snarls sap your
enthusiasm. And what about the kid's sport - who can skip off for the weekend
when you have two games of netball and a rugby match on a Saturday morning?
They're all pretty compelling points aren't they?
For most
of us a holiday home is an absolute luxury. For me, I would only take the
plunge if I had enough money such that it didn't impact on my normal
lifestyle(which basically means its not happening!). The thought of scrimping
and saving to hold on to a home that I may not get to as much as I liked or
cramped my ability to see new places just doesn't appeal. Managing assets and
homes is a lot of work and responsibility and I think, despite the beach house
envy I seem to become infected with every time I rent a coastal home, when I no
longer have children to consider, the call of exploring as yet unseen
destinations is too much of a pull. But hey, never say never.
For now I
am just extremely grateful to have friends with means who think the opposite to
me. What about you? If you had the dollars is it a beach house or farm? Or is
the whole idea a waste of time and money?
Love to read your comments as I sip chilled wine from my
"office" on the balcony :-).
