Having a rental property that you rent out full time makes sense, but what about a holiday home? A place where there will be a good percentage of the year where it's vacant? Should you consider it an investment or is it more of a luxury?
It is commonly believed that it isn't a smart investment, but if you love the place and you will use it most of all, then maybe you are on the right track. Lets look at some ways make the most out of the investment/luxury.
- Buy what you can afford. Makes sense for all investments really. But don't count on the income from the property to help pay for it.
- Remember the extra costs. If you buy a house by the sea, remember sea water will cause extra wear and tear on the house. If the place is more than an hour away you will most likely need to use a property manager. It is wise to talk to the locals and get an idea of what costs are involved in keeping a place in the area in good condition. What about tax implications on owning a second home? Will that have an impact on costs? So make sure you set aside a chunk of money for costs - then double it!
- Buy a house, not land. Building your dream house does sound like a 'bucket list' item, but it can be far more problematic. You will have to deal with local authorities, encounter restrictions on the planning and then there is the actual build? Who is going to manage it, and how often will you be able to get to the property to oversee the work? Keep in mind that a new build rarely - if ever - comes in under budget, are you prepared for that?
- Work with the locals. If you are buying in an area that you don't know well, make sure that you at least work with a local agent who really knows the area. They will be able to tell you that the area you want to buy in is flooded 3 months of the year, or that a road is often closed due to fires or parking at the beach becomes a nightmare in summer. A local agent will be able to help you understand all the possible pitfalls.
- Will it make a good rental? Your idea of a fantastic rental maybe completely different to everyone else. Make sure that the property will be appealing to the widest group possible and that it is furnished tastefully. How many people will it sleep? Make sure that you have numerous sleeping options, from beds, to (luxury) air mattresses, trundle beds etc. The more people it can sleep, the wider net you cast. Is it in the middle of the action? Is it close to the beach and the shops? These rentals will cost more, but they are more popular.
- All four seasons. make sure you know what it is likes throughout the year in all seasons, will that fantastic beach front property turn into a freezing, wind blown unpleasant place? Visit the area in all seasons and see what you think.
- Think hard about a joint venture. A joint family investment can start wars! If you think that you and the co-owners will be able to handle the stress of buying, selling and renting make sure you build precautions into the contract. Make sure everyone knows who is responsible for what, what percentage everyone owns and what percentage of the income you will each receive. If you put 70% of the money in, will you get 70% of the money out? What if you want to sell your share?
- It's a luxury not an investment. You won't make the same returns on a holiday home as you would as a full-time tenanted property. As long as you are aware of that, and view the property as place that you will enjoy for many, many years then it is most likely worth it.
So what other areas do you need to look out for when buying a holiday home for an investment?
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