Did you spend your holidays contemplating the purchase of a bach?
Summer weekends in the sun at the family bach have always been a Kiwi dream. But with the current price of coastal properties, it’s important to do your homework thoroughly – and seek expert advice from different professionals.
To get you started, here are some key things to think about (not necessarily in this order).
How much does a bach cost?
Price is an important part of the equation for anyone looking at buying or selling property. If basic Kiwi baches used to be affordable for many, that’s no longer the case in a lot of favoured holiday spots – like Waihi in the Coromandel, Raglan in the Waikato, or Akaroa in Canterbury.
According to CoreLogic, price growth in these areas has slowed or dropped in the past year, but not enough to offset the huge growth experienced in the past five to ten years. Depending on your budget, you may find something more affordable outside the most desirable beach towns: websites like TradeMe, OneRoof and Homes.co.nz are a great place to start your search.
Checking what property values are likely to do over the long term is also key. Historically, real estate data shows that properties with sea views tend to hold their value, but they also tend to cost comparatively more. Get in touch with an expert adviser who specialises in property investments to understand your options.
Will you rent it out?
Many people choose to buy a bach and rent it out short-term when they don’t use it. This allows them to save money on holiday accommodation while also recouping some of the costs through short-term rentals. If you’re thinking of going this route, please be aware that it could bring tax obligations: make sure you speak to a tax specialist to learn more.
Usually, peak season in holiday hotspots is about 10 to 12 weeks a year – which are the same summer weeks you probably want to use the holiday home. The key thing is to find the balance between renting it out and enjoying it for yourself. And again, location is key: look for a place that can be enjoyed all year round, thanks to proximity to outdoor attractions or winter activities.
Can you afford it?
Buying a holiday home isn’t just about the purchase price. There are other costs involved on top of it, like insurance, council rates, utilities, and ongoing maintenance.
You may also need to hire a property manager, to help you stay on top of wear and tear repairs, general upkeep, and tenants. Keep in mind that a holiday rental may suffer more wear and tear than a long-term rental, so factor in potential out-of-pocket repairs, just in case.
Are you eligible for finance?
As mortgage advisers, we may be able to help you answer this question. Different lenders may have different criteria that apply in terms of deposit requirement, your intended use for the property, the property size, and many other factors. Eligibility may be dependent on more than your ability to afford repayments.
Unlike long-term rental income, short-term rental income is unlikely to be included when assessing your affordability. This means you will need to demonstrate that you can afford to pay the additional mortgage without short-term rental income, on top of your first home loan.
Like to learn more? Please don’t hesitate to contact us. We can help you run the numbers and find out if you have equity in your home to use.
What about tax obligations?
There are key rules around tax and holiday rental properties: make sure you seek specialist tax advice before your purchase.
What about property insurance?
That’s another crucial factor to think about, and getting expert advice from a home insurance adviser can make all the difference.
With rising sea levels, a property may be considered high-risk for insurance purposes, which means you might pay a higher premium or cover may be limited. And remember, if a property can’t be insured, it can be challenging to get finance approved.
Don’t overlook due diligence
In many ways, buying a bach is no different from buying your first home.
Before signing on the dotted line, make sure you ask your lawyer or conveyancers to check all the legal documents for you, including the legal title and LIM report. It’s also a good idea to get the property checked by a building inspector, who can identify any hidden defects or maintenance issues that need your attention.
These checks come at a price, but the peace of mind they can give you is priceless.
Need a mortgage for your bach?
Get in touch: we’re here to help every step of the way. And if you need assistance in other areas, like home insurance or tax advice, we work with great professionals that are experts in their fields.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
Link Financial Group Ltd trading as Mortgage Link and Insurance Link FSP 696731 holds a licence issued by the Financial Markets Authority to provide financial advice. Please visit https://mortgagelink.co.nz/available-disclosure/ for more information and Disclosure information.
