Surely one of Australia’s most successful investors has snuck a holiday home (or even two) into his portfolio at some stage?
It had never really crossed my mind, so I had never had the chance to ask Michael Yardney this question.
It was only recently when we were sitting with a few of our clients in Brisbane that the topic came up.
We were discussing their goals and what they wanted to achieve over the longer term and how we could help them.
They had made a positive start of it but wanted to get to the next level and included in their short-term goals was a Holiday Home.
If you ever have the opportunity to talk with Michael, you will appreciate that he is straight to the point and does not leave you wondering and importantly, almost always right!
Which is exactly why our clients like to speak with him and why he is one of my mentors and my preferred “unreasonable friend”
So, it was a short and sharp reply to our clients: “No, you are not allowed to!” he laughed.
He turned to me and said, “Brett do you own a holiday home?” to which I shook my head, before he exclaimed “I don’t even own a holiday home!”
He then went on to explain - “ It’s not that you don’t deserve a holiday home - you can’t afford one.”
While they would have been able to afford it financially, what Michael meant was they can’t afford to buy a holiday home as it would only hold them back towards reaching their financial goals.
Buying a holiday home now meant it would take much longer to achieve their goals than the timeframe they were wanting.
Holiday home analysis
The Numbers
As I have previously written with holiday homes, the numbers just don’t stack up.
In general these properties tend to be located in secondary locations which have a poor track record for capital growth and they will not create wealth producing levels of asset growth.
Initially rents may look very appealing too, but the rental peaks are often when you want to be there and on the quiet times you may struggle to find a suitor.
Vacancy is the enemy of the investor.
Financial Capacity
Another one of my favourite sayings of Michaels is that “Investing in property is a game of finance with the odd house thrown in”
This is even more importnant now considering the financial environment that we currently find ourselves in.
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Whether you earn $100,000 or $500,000 per annum, you will reach a ceiling for what you are able to borrow.
So, you can’t afford to hold underperforming assets in your portfolio that will not grow in value and create wealth for you.
This is almost always the case with a holiday home - a great place to holiday but not to invest your money.
Practicality
A few key considerations really make me question the practicality of owning a holiday home.
Firstly, do you really want to be stuck in the same place year after year?
The cost of travel has stayed relatively the same and in some cases with competition got only cheaper.
Also, with accommodation sites like Airbnb, the opportunity to holiday anywhere around the globe has really opened up.
I suspect this is the major reason Michael Yardney does not own a holiday home.
I know he often spends 6 weeks over the Christmas break cruising and travelling the world in a different location each year.
In this day and age, it does not make sense to be tied to one location.
Summary
While it may surprise you, as it did me initially, that Michael Yardney does not own a holiday home.
But when you break it done, it makes complete sense for such an astute businessman.
You see, it only makes sense when you justify it emotionally.
Michael understands that financially and practically it does not make sense, and this is why he is such a successful investor.
While for others there may be a time and place for a holiday home.
When you are starting out, you can’t afford to be held back.
