Here at Flat Chat we tend to get a bit fixated on illegal short-stay holiday lets in residential schemes, so much so that we can forget that there are entirely legitimate holiday apartments that provide both an income for owners and an opportunity to have a holiday home on-call in a favourite location.
But social media has had an impact on legitimate holiday rentals too, with users of websites like Tripadvisor often ruthless in their very public criticism of sub-standard accommodation while promoting shiny, attractive alternatives.
Paul Morton, CEO of Lannock Strata Finance which provides strata loans to bodies corporate for repairs, renovations, refurbishments and defects, says holiday strata owners need to be aware that guest reviews have potential to impact on future yields.
“Even buildings that have been well maintained inevitably begin to show their age and lose their appeal to guests,” says Paul, one of Flat Chat’s long-standing sponsors. “Unless you have a property with a unique location that defies age, your returns will come under pressure from newer and better equipped holiday rentals.
“Social networking sites pose a significant threat to strata owners. There’s nowhere for a shabby building or dowdy guest lobby to hide when guests offer brutally honest reviews that undermine future bookings.”
Paul says the fact that investors in resort strata units usually lived a considerable distance from their investment meant many were unaware of the need for refurbishment until bookings and returns began to fall away.
“You need a first rate manager to ensure regular maintenance and prompt attention to repairs,” he said. “Things become more challenging when the building gets to the point of requiring significant capital works to maintain its value.
“Usually owners will be geographically dispersed and in all likelihood will have an equally diverse range of investment goals. However nobody’s best interest is served if the building is the last resort for holiday-makers so the only financially sound option is to spend the money and protect the asset.”
Owners canfund capital works through regular levies, one-off levies, borrowing or a mix of the three.
“Borrowing should always be considered amongst the options,” says Paul Morton. “For investors it’s off balance sheet and likely to be a cheaper option than a sinking fund.
“It is also less onerous for owners than a special levy that can affect the ability to pursue other investments and take away cash from other lifestyle activities. Mr Morton said in situations where future works were complex, owners needed to be aware of the cash flow and tax impacts of each of the three funding options.
“The best way to fund capital works depends on many variables: the nature of the property but equally each owner will have their own view of what’s right for them based on their personal financial and tax position and taking into account a range of competing objectives.
“If an owner is in any doubt about how their holiday unit stacks up, I highly recommend booking a short stay to judge whether it’s a place you’d give a 5-star rating to friends or strangers. The proliferation of discounted luxury holidays overseas has raised guests’ expectations and they will frequently question whether they’re getting value for money.”