The Dangerous Seduction of Investing In A Holiday Destination

September 15, 2017

 

 

The romance of buying an investment property in our favourite holiday destination is easy to understand. We have spent a day on the beach, the sun beaming, kids playing; work is a million miles away. As we step into the shower to wash that salt off, a light bulb goes off in our head: “This is living, everyone wants this…I should buy a place here before it’s discovered!”

 

The seduction is real, and it is utterly insane. As property consultants (and lovers of the numbers) Meridian have many clients asking that we run a favourite holiday destination through our research model, and compare those numbers against Australia’s most promising markets.

 

In fact, the seduction is so real that it often has even our existing clients forgetting that an ideal Investment Property location will present the following fundamentals:

 

  • Employment and Economic Cycles: A growing, diversified, dynamic, adaptable economy.

  • Population Growth: Strong jobs growth, in the immediate and long term, to attract population.

  • Infrastructure: Existing lifestyle infrastructure, and significant planned infrastructure projects, to further stimulate jobs and economy.

  • Rental Yield: Rental incomes high enough relative to the price.

  • Supply: Limited projected supply.

 

In contrast to this, what we all love most about our favourite holiday destinations is that they are a long way from our “dreaded work”, and are a quiet, quaint, small town...or in Fundamental terms:

 

  • Employment and Economic Cycles: “a long way from our dreaded work” = a long way from any major economy.

  • Population Growth: “quiet” = Small population.

  • Infrastructure: “Quaint” = Very little planned or existing infrastructure.

  • Rental Yield: Primarily holiday rental, with long periods of vacancy.

  • Supply: “Small town”, surrounded by vast areas of available land.

 

Still romance is a strong force, and it will do all it can to trick us into thinking that our special, quaint holiday destination will boom, just as soon as everyone discovers what you know. So lets take a closer look at the historical performance of Sydney vs. Forster vs. Jindabyne (two favourite holiday destinations, one for the sun goddess, and one for the snowman).

 The figures are what Meridian encourages our investors to live and breathe. Let’s look at what the above means for an investor who had $60,000 deposit + $30,000 costs, to invest in  2007, and where he or she would sit today:

While Forster grossly outperforms the majority of holiday markets across Australia, the margin between that and Sydney is too great to ignore. For the same initial input, a much stronger stable rental income and owner experience, and potentially lower maintenance cost; an investment in Sydney (compared to even one of the best Holiday markets in Australia) places a much higher return in our back pocket.

 

What is most staggering is that our major cities (those that comply with the fundamentals of property investing) are expected to exponentially outperform those holiday destinations, as demand for immediate access to Australia’s major economies continues to grow stronger.

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The Dangerous Seduction of Investing In A Holiday Destination

September 15, 2017

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