While relaxing and enjoying good times at your favourite holiday location, you stroll past the local real estate agent’s window and browse the offerings.
Imagine, staying regularly or living in the same place where you have so many great memories. Imagine owning a property where time seems to stand still, and where enjoyment is the longest lasting impression.
For many people, buying an investment property in their favourite holiday destination presents a double dose of benefits – the chance to regularly enjoy the best of holidays and build wealth at the same time. Such a property can also represent the ideal retirement destination, or somewhere to treat family and friends with affordable holidays in the meantime.
While buying a holiday property seems a glittering prize, what are the key considerations before taking the plunge?
Make sure you really like the location
The first and highest priority is to know that you absolutely adore the location of your vacation property, and will be happy to adopt the area as your home-away-from home. Gaining such an understanding is only possible by spending considerable time at the location, not just a weekend. It may require you staying for several weeks or longer to fully appreciate whether the location is going to stand the test of time. If you love snow skiing, are the ski fields to a standard that will bring you enjoyment year after year? If you love fishing, will the location provide a happy fishing experience for you, year-in year-out?
As opposed to staying at a resort or timeshare, buying a holiday property is a long-term commitment, and you cannot just move to the next location if you become weary of the location or property. Easy accessibility should also be considered. If the thought of catching two flights, or driving 1000 kilometres every time you want to take a holiday seems overwhelming, then you may wish to consider something closer to your first home.
Know all the costs
A vacation property is the same as any other property investment – you need to factor in all the costs involved, whether rates, electricity, maintenance, property management and all other overheads involved. A dream vacation property can quickly become a nightmare if your holding costs exceed your budget. In many principalities, the government treat investing in holiday apartments differently than straight-up investment properties, so tax is also an important consideration when crunching the numbers.
Management of property
It is likely that you will only spend a few weeks a year at a holiday property, so what happens for the rest of the year in your absence? A good property manager will not only ensure that ongoing maintenance issues are attended to quickly and effectively, but to maximise cash flow from rentals, will also work to ensure that the property is consistently occupied and cleaned while you are not there. Engaging a property manager to undertake ongoing maintenance is so important, as the last thing you want to do on your holidays is to spend them repairing.
Due diligence on important indicators
If you can create more wealth at the same time as enjoying the benefits of a vacation property, then you have achieved two goals at once, but this will not happen by accident. Before buying a vacation property, make sure it has the capacity to attract enough holidaymakers to make the investment viable. Ask local agents about the average rental yield in the area, average rents for similar properties and occupancy rates, which can often be lower and more volatile in holiday locations. Most holiday destinations experience “high seasons” when rent prices can be increased to accommodate increased demand. If this season clashes with your preferred holiday times, you may have to forgo earning higher rents for your own enjoyment, and this should be factored into your calculations.
Take security seriously
If it is likely that your vacation property will be left unattended for weeks or months on end, to protect your investment it is crucial to consider security.
Depending on the location and type of property, this could take the form of contracting a security firm to patrol the property regularly, or installing security and alarm systems. Perhaps it could mean undertaking certain renovations, such as installing bars on windows or more secure doors.
In the end, you need to be clear of your priority when buying a holiday property. Is your first priority to buy a holiday property, or to build wealth through the purchase of an investment property. Your priority will inform your purchase.
When it comes to buying in pristine tourism destinations, it is so easy for the heart to rule the head, so before you jump in, make sure you are clear about your priorities, think long term, and know that the numbers stack up.
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