Things to consider before buying a holiday home

As with any large purchase, the decision to buy a holiday home should be a carefully considered one. Being a lifestyle asset, a holiday home is generally not considered an income-producing asset even though you may have intentions to rent it out when not in use. Given the high costs of buying and selling property, it is advisable to take a long-term view of property ownership – which when it comes to buying a holiday home, means carefully considering your immediate lifestyle needs as well as your future plans. Here are some factors to consider:

Price and affordability

If applying for finance on your holiday home, keep in mind that it is often difficult to obtain a full bond on a second home so be prepared to put down a sizeable deposit on the property. If you have intentions to rent out the property, note that banks will generally not consider potential rental income when considering your affordability. Think carefully about the hidden costs involved in owning a holiday home such as furniture, rates and taxes, security, maintenance, travel, and cleaning services, gardening services, security, Wifi, as well as the impact on your cash flow in the event of interest rate hikes. Importantly, be sure to understand any special building requirements of the resort, complex or holiday village that you intend purchasing as this could affect your budget and/or plans going forward.

Distance and accessibility

Consider the distance from your primary residence to your holiday home as this will impact how often you’ll realistically use the house. The greater the distance between the two properties, the less likely you are to use the house for quick weekend getaways or spur-of-the-moment breaks. Naturally, the distance will also directly impact your travel costs, as well as the costs of maintenance and upkeep if you’re forced to outsource these due to lack of proximity. Before buying, weigh up how often you’d like to use your holiday home versus how often you’ll realistically get to use it, especially if you have schoolgoing children whose weekends tend to be jam-packed with extra-murals and sports fixtures. If this is the case, you may find that use of your holiday home will be confined to long weekends, Easter and Christmas, in which case rental may be a more feasible option. If you’re unsure, consider entering into a year-long rental option and give it a trial run to see how much you really use it. This will give you the added benefit of experiencing the holiday resort or town during the off-peak season.  You may be surprised at what you learn from the experience, and it may save you money in the long run!

Maintenance costs and security

Some holiday resorts and/or complexes are very strict in terms of maintenance, upkeep and adhering to body corporate/resort specifications, so understand what you are signing up for before buying. Keep in mind that seaside homes in particular may require more upkeep as a result of the salty sea air, especially when it comes to rust, wooden openings, and window cleaning. Being a holiday home, security will no doubt be a priority especially if the property will be unoccupied for long periods of time, so be sure to factor in the costs of security hardware installation, monitoring and armed response.

Rental income

If you’re planning to generate rental income from the property to assist with costs, be sure to do your research. Many holiday complexes and/or resorts have strict rules regarding short-term letting through platforms such as Airbnb, so make sure you are permitted to rent out your property. Remember also that holiday home rentals are seasonal so make sure you budget carefully to account for the off-peak season when there is a low demand for holiday rentals. If you plan to outsource the rental of your holiday home to a rental management company, be sure to understand their fees and commissions so that you can be realistic about the net rental you can expect to earn from your property. When it comes to renting out holiday homes, bear in mind that there is a huge inconvenience factor for landlords who are often expected to be available 24/7 to cater to the needs of tenants, especially overseas visitors or properties based in high-end resorts.

Current and future lifestyle needs

Consider how your lifestyle needs will change over the next ten years at least and whether your holiday home will add meaning to your life and that of your family in the foreseeable future. If the idea is to create a holiday home for the extended family to share holidays and create memories, consider whether the property is fit for expansion and what renovations would be required – bearing in mind that you’ll want to avoid over-capitalizing.

Role of property in overall investment portfolio

Consider how the holiday home fits into your long-term investment picture. Do you ultimately intend to sell your primary residence and retire to your holiday home? Do you want to keep it as a holiday home for future generations to enjoy? Is there a chance of your adult children emigrating, and how would that impact your plans for the holiday home? Are you relying on the value locked in the holiday home to help fund for your retirement, keeping in mind that there may be capital gains tax implications on the sale of a second property? Is there benefit in purchasing the holiday home in trust and, if so, how does this align with your overall estate plan? Are you and your spouse in agreement with the purchase of the holiday home?

There are multiple lifestyle, financial and emotional factors that play a role in the decision to purchase a holiday home, and it’s important that all are carefully debated and contemplated. In your deliberations, consider the following advice:

  • Be sure to visit the holiday resort during off-peak periods and when the weather is inclement. You may find that there is a different feel to the resort when it is empty, and that activities are limited when the weather is bad.
  • Visit other holiday towns and/or resorts so that you have something to compare to.
  • Consider a long-term rental option that will allow you to experience what it feels like to have your ‘own’ holiday home and to gauge how regularly you use it.
  • If you’re going to be dependent on rental income to help cover the cost of owning a holiday home, ask the estate agent to provide you with rental data for that area
  • Before you put an offer in, get advice from an experienced financial advisor on how best to incorporate a second (or third) property into your estate.
  • Take a long-term view on ownership. Buying and selling property is expensive, so if you envisage using a holiday home for a few years only, it may not make financial sense.

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