Investment - Individual

Is buying into a timeshare property a good investment? Buying a timeshare property can be a low-cost way to initially invest in a holiday home, but there are often hidden c...
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Investment - Individual

The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.

I’m looking to buy an investment property. Is a holiday home a good choice?

When choosing between buying a standard residential property or a holiday home, you need to decide whether you're making a strictly financial investment, or a lifestyle choice. Ask yourself the following:
  • Will the investment property (bach) be used as a holiday home for your family with short term rentals, or will it be rented out to others long term?
     
  • Are you able to cover a large portion of the running costs out of your own funds, if you are unable to get rental income for much of the year?
     
  • What long or short-term financial goals do you have for the property?
     
  • Will the investment property offer you any New Zealand tax benefits?
 
  • Are you confident of your financial position if there is a downturn in the New Zealand holiday rental or sales market?
If you're investing in property for the first time, consider whether you'll require constant rental income to cover mortgage repayments.  If you do, a long-term residential property investment is probably more suitable for you.

What should I look for when buying a holiday home for investment?

Location is the most important consideration for holiday home investments. The property must be in the right area to attract regular rental opportunities, and to provide the potential for strong capital growth. Things to consider include: 
  • Surrounding infrastructure and amenities in your chosen location.
     
  • Future plans of local municipalities and / or developers for the area.
     
  • Tourist appeal, from kiwis and from overseas visitors. Will the property attract interest all year round, or only during peak seasons?
     
  • Accessibility of your property to major towns and / or airports.
     
  • How attractive is the property itself, and the street it’s sitting on?
     
  • Does the property enjoy good natural light, a quiet environment, and a good amount of accommodation space?
     
  • Will the property appeal to a broad range of tenants such as couples, singles and families?  Is the property near to restaurants and tourist attractions?
     
  • How is the property likely to hold its value? In a financial downturn, free-standing property tends to drop less in price than units or apartments. 
It's often wise to buy in an area that you personally enjoy taking holidays in.  That way, if rental income is difficult to get for any reason, of there is a downturn, you still have holiday accommodation that you can use personally and enjoy.

Are there any hidden costs associated with buying a holiday home?

Make sure you don’t underestimate the ongoing expenses and outgoings involved with the ownership of an investment property. These costs can include:
  • Body corporate levies and costs.
     
  • Letting and property management fees.
     
  • Insurance costs.
     
  • Caretaker, cleaning and maintenance costs.
     
  • Electricity, gas, water and council rates.
 
Consistent advertising to find tenants to rent the property, regular property maintenance, furniture replacement, and linen hire are other expenses to consider.
Expenses you may choose to incur in order to make the property more appealing to potential renters could include the provision of high quality furnishings, Sky TV, modern kitchens and appliances, air conditioning or heating units, barbeques and outdoor dining areas, and even broadband internet connections.
Holiday homes can sit vacant for long periods.  As an investor, you should ensure that you have funds in reserve to cover mortgage repayments and fixed costs

What is a timeshare property investment?

When you invest in a timeshare property, you purchase the rights to use a unit in that property, often a hotel or resort facility, for a set period of time each year.  You pay a set administration fee each year for this service. You can usually trade these rights with other timeshare owners, enabling you to purchase the rights to holiday at a different time of year, or to purchase accommodation in a different location or resort.
Note that you never actually own the property, just rights to use the facilities.  New Zealand timeshare sales are covered by law through the Securities Act. This requires the promoter of the timeshare to register a prospectus and distribute an investment statement to potential purchasers.  You are paying up front for the rights to use the property for many years to come, so it's important that the company which owns the actual property is financially stable.
Timeshare resorts and exchanges associated with the New Zealand Holiday Ownership Council will need to abide by that body’s code of ethics.

Is buying into a timeshare property a good investment?

Buying a timeshare property can be a low-cost way to initially invest in a holiday home, but there are often hidden costs that are not always immediately apparent. If you’re looking into a timeshare investment, make sure to consider the following:
  • There may be extra costs other than those associated with purchasing your timeshare rights. These might include hidden fees, levies that rise over time, and future obligations to fund repairs and maintenance. Make sure you understand all the costs involved before signing anything.
     
  • Do not expect to make money reselling your timeshare rights. While it is possible these will increase in value in some instances, it is not a common occurrence.  Many owners lose up to half of their investment when reselling.
 
  • Some timeshare purchasers end up even worse off, because the value of the property they have invested in depreciates drastically over time. Make sure you understand how long your investment will last, along with the obligations property owners have to reinvest in the property.
 
  • In an economic downturn, demand for your timeshare period may decrease, particularly outside of peak holiday weeks. As money gets tight, people tend to take less holidays, not more.
     
  • While timeshare sales people may try to sell you on the benefits of being able to swap your timeshare rights for those in different properties, make sure you investigate how active the exchange market really is. If the swapping process is difficult, inconvenient, or costly, or there are not enough participants willing to swap, then the promised benefits may never materialise.
     
  • Make sure to investigate the quality of any properties you wish to swap your rights to, and make sure they are of comparable quality and desirability to the one you are investing in.
A well run timeshare scheme can provide a low cost and flexible way for you to access a holiday home, especially in prime tourist locations.  If you're looking for an investment that offers a positive return or capital gains, consider other options. 

Can I rent out my holiday home myself or should I use an agent?

When deciding whether to rent out your holiday home personally, or to entrust it to a real estate agent or property manager, consider the following:
  • What knowledge of the industry and rental market do you possess?
     
  • How much free time do you have to devote to marketing your property, dealing with renters and handling any unforeseen issues?
     
  • Do you have the ability to handle maintenance issues personally (or the time and contacts to arrange for tradespeople)?
     
  • How willing are you to involve yourself in your customers’ rental experience or to deal with possible complaints?
If you decide to manage the letting of the holiday property yourself, there are a number of tasks that you will need to undertake.  These tasks include preparing an inventory and condition report at the beginning and end of each rental period, cleaning the property after it has been vacated, laundering used linen, replacing any broken appliances, and transferring the keys to each new tenant.
Self-managing owners need to be highly organised to handle all of the tasks required.  It also helps to have all advertising and booking mechanisms streamlined.
First National Real Estate property managers can handle all aspects of holiday home property management for you, removing hassle and stress.  Our property management fees are inexpensive, and are normally a tax-deductible expense. Contact our property managers now and let us manage your holiday rental for you.

How should I choose a real estate agent to lease my holiday home?

The difference between having an empty holiday home and an occupied one will often come down to having an experienced, professional property management team working on your behalf.  When selecting a real estate agent or property manager to look after your holiday home investment, look for a strong track record of experience in holiday letting, combined with an extensive knowledge of the local rental market. 
First National Real Estate property managers are highly experienced experts.  Once engaged, your agent will draw up a written Property Management contract with you.  This contract will outline everything the agent will be responsible for, what he or she will need to get in touch with you about, and anything else related to your overall relationship. Items that should be specifically included in the agreement are:
  • The Property Manager’s fees or commission.
     
  • Reporting frequency and what needs to be included in each report.
     
  • Inspection frequency - e.g. how often they will inspect the property.
     
  • Details of how the property will be marketed (and allowed budgets).
     
  • Handling of bond lodgement, bond refunds and payment of rent.
     
  • Tenant screening and selection criteria.
     
  • Processes for dealing with complaints, rent arrears or other problems.
     
  • Processes for reviewing the rental price with potential or existing tenants.
     
  • Procedures for handling maintenance – both routine and extraordinary.
     

As a landlord of a holiday home, what services should I be supplying to my tenants?

All tenants must be provided with the keys to your bach or holiday home. Landlords should also specify (in writing) the services and facilities, if any, that are included in the rental price. Some commonly provided services include:
  • Electricity, gas, water and local phone calls.
 
  • Cleaning services.
     
  • Gardening.
     
  • Sky TV.
     
  • Broadband internet.
     
  • Laundry services.
While some customers enjoy a traditional and basic kiwi bach experience, other guests (especially from overseas) may be expecting more high-end facilities such as:
  • Modern kitchens and bathrooms.
     
  • Quality furniture and soft furnishings.
     
  • Luxury sheets, towels, and pillows.
     
  • Contemporary appliances (Flat screen TVs, computer games, modern kitchen and laundry appliances).
     
  • Adequate air conditioning and heating systems / pumps.
     
  • Outdoor dining and cooking areas / barbecues.
If your holiday home has these features, it’s a good idea to advertise them prominently.  These features may persuade tenants to choose your accommodation over other properties, or to pay a higher price to rent your accommodation.

How can I make sure tenants don’t do any damage to my investment property?

Make sure that you or your property manager conduct a thorough review of the property before each tenant moves in. Complete a Condition Report outlining any existing damage, marks, or signs of wear and tear on the inside and outside of the property. Complete an Inventory Report detailing all furniture, appliances, cutlery, crockery and other items provided with the property, along with their condition.
The better the Condition and Inventory reports are prepared, the better the outcome for both parties at the end of the tenancy.  Some landlords take photographs to prove the condition of certain items, and attach these to the agreement. Both of these reports should be signed by the landlord and the tenant.
Inform your tenants that you will be inspecting the property again at the end of the tenancy. This should encourage them to take care of your property while they are living there. Let them know that if they do happen to damage something, they should contact you.  It's easier to work something out together during the tenancy, rather than sending the tenants a bill once they’ve left. It is usual for landlords to cover minor expenses (such as the odd broken plate) or fair wear and tear themselves. For more significant damage, the occupant will be responsible.


Taking bond at the beginning of the tenancy offers landlords some protection.

 

What safety requirements do I need to consider when leasing out a holiday property?

Landlords and their agents have a duty of care to the tenants who lease their holiday property. The property must meet all appropriate health and safety standards before it is occupied.  Conduct regular checks of electrical and gas appliances, to make sure that they are in good working order, and compliant with local laws.
If the property has a swimming pool it will need to be adequately fenced to prevent young unsupervised children from falling in. The Fencing of Swimming Pools Act outlines the minimum requirements for such fencing, and rules around placement. This Act is enforced by local councils and the fines for not complying can be steep.
If you need advice on whether or not a fence meets the Act requirements, contact a First National Real Estate Property Manager. We're happy to help.