The holiday home romance

We all know the feeling. The sun is shining, the waves are lapping peacefully on the shore, there’s a cool ocean breeze wafting gently through your hair and the crisp sand is etched between your toes.

Sometimes you wish your holiday romance could last forever.

Technically it could!

Hundreds of thousands of Australians own their holiday getaways. With the temptation to escape the daily grind, a holiday home can be a very rewarding purchase.

But do holiday homes make a good investment?

When it comes to investing in property, it’s easy to let your emotions rule. However, before you make any snap decisions you should consider the benefits and risks associated with this kind of purchase.

 

The benefits

  • Free accommodation when you go on holidays.
  • You will have a home-away-from-home with unlimited access (depending on tenancy arrangements).
  • You can rent your holiday home out for the portion of the year that you don’t intend on staying there to help mitigate some of the costs. This can be particularly beneficial during peak seasons.
  • Your holiday home may increase in value over time. The potential for capital growth on property investments is generally higher than that of cash and fixed interest investments depending on the property.
  • You can claim a tax deduction for expenses incurred in maintaining your holiday home for the period of time it is rented out.

 

The risks

  • Occupancy rates fluctuate. Strong demand for holiday homes is on average around 8 to 10 weeks per year – and this is dependent on location. Demand for homes in a warmer climate is more consistent (especially if it’s beachfront).
  • If you rely on income from peak holiday seasons you won’t be able to use your holiday home during these times, e.g. during school holidays.
  • You may need to take on a significant mortgage as holiday homes can be quite expensive.
  • On top of the initial cost of buying the property you will also need to consider the costs of maintaining the property, including management fees.
  • Any net rental income earned and assessable capital gain when you selling your holiday home will be taxed at your marginal rate.
  • If there is a property market downturn, holiday areas are generally the first to suffer and the last to recover. If you have chosen an area, do thorough research on past cycles and how they have affected local prices.
  • You might get bored visiting the same place over and over. On top of this, you may even feel guilty if you holiday somewhere else!

 

Investing in any type of property is a big decision. When considering purchasing a holiday home, you should try and think a little less with your heart and a little more with your head. Seek professional guidance before making any big decisions.

What to do if your job is made redundant

Being retrenched from your job can be hard to accept. And unfortunately we’ve seen more people lose their jobs lately as a result of the global panic around COVID-19.

The sudden news and shock that comes with that is often the hardest part for people, but it’s important to try not to take it personally. Redundancy is usually not about your personal performance. It often comes down to the performance of your employer’s business, the industry sector in which you work, or even the global economy.

Whilst redundancy can make you feel out of control, there are things you can do to put you back in the driver’s seat for your life and career.

Take control

  • Redundancy payment: Genuine redundancy payments are given special tax treatment, including a tax-free amount related to years of service. Your lump sum payment might be your last pay packet for a while, so draw up a budget. This will help you identify areas where you can economise until you find a new job. Your financial adviser can help you work out the best use for any lump sum you receive.
  • Mortgage: If you have a home loan, contact your lender immediately. You may be able to adjust payments while you are out of the workforce.
  • Centrelink: You may be eligible for income support from Centrelink. Especially if you’ve been made redundant due to COVID-19 – a lot of businesses had no choice but to close their doors, so unemployment has skyrocketed. In response, the Australian Government has been making large injections into the economy, one being the announcement of the Job Keeper welfare package. Be aware that waiting periods and income and asset tests apply, so contact Centrelink as soon as possible. A lot of the usual paperwork has been waived for those seeking Job Keeper payments, but you’ll still need to wait either in line or on hold. Go to www.humanservices.gov.au for details, and speak to your financial planner to find out what’s best for you.
  • Superannuation and insurance: Depending on your fund, you may need to rollover your superannuation benefit. You may also need to replace any insurance cover you had with your employer super fund. Your adviser can guide you on these matters; firstly, contact your super fund to check your insurance details.
  • New job or new career: Redundancy may be an unwanted challenge, but many people take the opportunity to make the move to a completely new career. This may involve a period of re-training for which government assistance may be available.
  • Other support: Some companies offer outplacement assistance to former employees. Apart from helping you update your CV, find a new job or transition to a new career, outplacement companies can also provide support in dealing with the emotional consequences of retrenchment. If outplacement services are available, always take advantage of them.

The emotional side

At first I was afraid, I was petrified…” Gloria Gaynor sang in her 1978 disco hit “I Will Survive”, and although she was singing about love lost, she could just as easily have been singing about being made redundant from her job.

Remember you can survive… and even thrive!

Some welcome the financial windfall a redundancy may bring, but for others the emotional consequences of losing a job can be serious, varying from feelings of helplessness to deep depression. If you have family members or friends who are not handling their job loss, encourage them to get help. The family doctor is a good starting point or visit www.beyondblue.org.au for further information.

For financial assistance, get in touch with our team today.

The art of downsizing

The kids have finally left home and now you’re rattling around in a house much bigger than you need. If it’s time to think about downsizing, there’s more to it than simply selling one house and buying another. Here are a few things to consider.

Tax-free gain

Selling a large house and buying a townhouse or unit, perhaps in a more affordable suburb, can free up a significant sum of money which you could use to help fund your retirement or take that dream international holiday. But before you get too excited by your potential windfall, remember to take into account expenses such as agent’s fees, removalist costs and stamp duty on the new property. This will give you a better idea of how much additional cash you are likely to be left with.

Generally, any capital gains on the sale of the family home are exempt from capital gains tax (CGT). However, if the home has been used for income-producing activity, such as running a business or letting out a room, then a portion of the gain may be subject to CGT.

On the upside, downsizing may reduce your living costs. New homes are usually more energy efficient, and cost less to heat and cool than older housing stock.

Centrelink considerations

The family home is exempt from Centrelink’s age pension asset test. If qualifying for a full or part age pension is important to you, you may not want to free up too much cash when downsizing.

Indeed, some retirees actually dip into their savings to buy a higher value home. Their aim is to reduce their assessable assets and maximise their pension entitlement. This isn’t always a good idea as it increases the risk of being caught in the ‘asset rich, cash poor’ trap.

Super boost

As an incentive to downsize, Australians over the age of 65 are permitted to make a contribution to super of up to $300,000 each ($600,000 for a couple) from the proceeds of selling their home if they satisfy the eligibility requirements

The amount will be treated as a non-concessional (after-tax) contribution, and exempt from the usual restrictions. The contribution must be made within 90 days of the change of ownership. (in most cases, change of ownership would be from the settlement date).

For most people under 65, super may also be a desirable destination for most of the money freed up by downsizing. Make sure that any contributions fall within the relevant limits.

Emotional cost

While the financial benefits of downsizing can be considerable, moving house is amongst life’s most stressful events. This is particularly the case when you are giving up a home full of family memories, and parting with many prized possessions to fit into a smaller space. Just being aware that you may face an emotional reaction is a start, but be open to seeking professional support if moving does bring on a bout of the blues.

Seek financial advice

Downsizing has both financial and lifestyle dimensions, and you’ll want to make the most of any profits you realise. Talk to your Bridges financial adviser before you get the real estate agent in. He or she will work with you to craft a short-term strategy to help ensure your downsizing experience supports you in achieving your long-term goals.