Investing Outside the Box – Spotlight on Snow Properties

At Suburbanite we typically look at bread and butter style investment properties, the ones that are safe as houses – excuse the pun. This makes the most financial sense for our mum and dad investors. But, lets jump out of the box for a moment and take a look at some of the more left of centre investments in the property sector.

Since winter is upon us, we will start the series with investing in the SKI FIELDS.

Lets look at the NSW snowy region as an example. You can purchase in the outlying areas like Jindabyne for as little as about $300,000 for a small older style unit or vacant land that is ready to build on. But more typically a 3/4 bedroom home will range between $500,000 and $800,000. However, this is still located outside of the national park and it is still about 45 minutes into the snow fields. With the popular skiing locations offering limited parking, many people prefer to purchase a property in the snow villages so that they don’t need to travel in each day and battle for parking. To purchase in the popular ski locals such as Thredbo, which offers a small village as well as slopes that are popular with families, you will be typically be spending upwards of $900,000 for a 3/4 bedroom Chalet.

The larger resorts like Perisher will set you back upwards of $1,000,000 to get into the market for a 3/4 bedroom property.

You can get into some 1 bed and 2 bed units for as little as $300,000-$500,000 but it is important to remember that these properties do not rent as well during ski season. The typical family looking to spend their holidays in the snow will be looking for three and four bedroom properties. So if you pick up property that isn’t as desirable to the holiday market you could end up with more extensive vacancy.

 

When buying in the snow, it is important to understand what you are buying. The property titles in the Kosciuszko National Park are leasehold and this is typically structured on a 50 year lease. Which means as the home owner you pay a purchase price for the right to have that lease for the specified period of time and pay ongoing fees similar to council rates and taxes for maintaining the services to the area, then when the lease expires it is expected, but not guaranteed that it will roll over for another 50 years. Part of the lease structure means that all property in the National Park are for holidays, and this means you are not supposed to live in the property full-time.

 

Purchasing this style of property is not for the novice investor. The price points are high and so are the overheads and running costs. It is ideal for someone who likes to holiday in the snow regularly and with the cost to stay there as a tourist typically running upwards of $1,000 a night for a quality 4 bedroom property, this can certainly save you some money on your annual holidays. But if you will be occupying the property for most of the ski season you will not attract premium rental returns that are only realised in snow season.

What we often see is a group of 3 or 4 families going in together and purchasing one property between them and then sharing the occupancy throughout the year. Giving each owner a few weeks in ski season and divvying up the rest of the year equally. It is then up to the individual if they want to occupy it themselves in the peak season or if they want to rent it out to get some income.

Some of the things to consider in this structure include lending issues. It is hard to secure a loan against a property that is owned by multiple people as each person will need to guarantor for the others and everyone is then at risk of each others financial circumstances. If one person can-not meet the monthly financial commitment then that effects all owners. So it is usually structured in a way where there is no lending against the property, the owners either utilise cash funds or draw down equity against their own home or other properties and utilise that as a ‘cash out’ to purchase the property, but in reality there is a lending component that needs to be accounted for in the costs to hold.

When deciding if this type of investment if right for you, it is also important to take into account the higher operating costs. This won’t fall under the same umbrella of costs as a typical property. There are additional costs to consider such as, marketing of the property for holiday rental, fees for a management company to look after it for you, additional cleaning costs, higher insurance due to the short term letting and nature of the property geographically will attract high premiums, replacement of lost/damaged furniture items as these properties are fully furnished, replacement of out-dated furniture items as this will impact the rental returns.

Typically it doesn’t add up as a strong investment. Especially if you need to borrow the money as the costs will significantly outstrip the income and the rental income can be inconsistent. So you need to be able to hold for extended vacancy periods and manage your cash flow and expenses through those times.  The capital growth can also be slower than other investment opportunities. If you are in a position where you have the surplus cash funds, and spend a lot of time holidaying in the snow then this might make sense to you financially.

Lastly, make sure you consider the tax implications. The ATO in recent months have put owners of holiday homes on notice that they are in their sights. They will be focusing on investors of holiday style accommodation claiming deductions for properties that are not genuinely being rented or are not genuinely available for rent and they remind investors that they can only claim deductions for expenses made during a time when the property is rented.

So make sure you speak with your accountant before jumping into a lifestyle investment like a snow home.