Buying property for investment purposes is popular the world over. But most investors choose the option of long-term tenanted rentals rather than go down the path of owning a holiday rental property. Often they feel afraid to buy in an area that isn’t close to home and which they don’t know well. On the flip side they can have a property that they can enjoy for holidays and make great returns. Let’s look at the pros and cons in more detail…
Saving money on Holidays
Holiday home owners can save thousands of dollars per year by using their own homes for weekends away as well as longer breaks. There is no need to pay for expensive flights as the home is likely to be within driving distance (particularly convenient if you have a young family or dog). Other than petrol costs and maybe a post-stay clean (if you don’t want to clean it yourself), there are few costs involved.
Getting away more often
Having a holiday home a few hours’ drive away means that you can hop in the car and enjoy a weekend away at the drop of a hat. What would ordinarily cost a great deal of money to rent can now be enjoyed for free (presuming your rental income covers your loan payments). Naturally some holiday home owners choose to buy properties far from home, but these are in the minority.
Investment (capital gains)
Holiday homes can be as good an investment in terms of capital gains as any other property. A carefully selected holiday home in the correct location can bring substantial gains over time.
An owner says…
“We bought our holiday home for $316k. Including renovations we spent approximately $350k. 6 years later it is worth close to $600k – a $250k gain in only 6 years!”
The biggest “pro” with a holiday home is arguably the amount of rental income that can be generated. If the property is run and marketed effectively the rental returns can be astronomical compared to a long-term rental (and you get to enjoy it yourself too!)
An Owner Says…
“On the current long-term rental market our property would rent for $300 a week. Our rental income running it as a holiday home is more than five times that amount!”
Share with others
Not only does your level of coolness increase exponentially when you tell family and friends that you have a holiday home it’s also great to be able to share your home with them. You’ll also be surprised at how many of them are happy to pay to stay there (with a little friends’ discount of course!)
Having a holiday home also helps you do something great for the world. The majority of holiday homes have spare capacity at some stage during the year, and a great thing to do is to donate any spare capacity you may have to a charity to provide free accommodation.
“At our holiday home we have some capacity over the colder winter months so we donate this capacity to The Otis Foundation. This allows women being treated for breast cancer to stay at the house for free in order to have some time to recuperate and relax with their families after a very difficult experience.”
Groundhog Day (same place each time)
If you buy a holiday home you’d better make sure that you love the house and the area that it’s in as you’ll be spending a lot of time there! If you don’t have a passion for it or you are someone who craves constant variety of locations, a holiday home may not be right for you.
An owner says…
“We have owned our holiday home for 6 years and we’ve never lost the love for the house or location. In fact, as time has gone by we’ve become increasingly more attached to it as we make many lifelong family memories of our time spent there.”
Expense of borrowing
Unless you’re significantly financially endowed it’s likely that you may need to borrow money to buy your property. The amount you need to borrow needs to be carefully weighed up against the potential rental income or you could find yourself in financial difficulties. It’s also important to remember that holiday homes can be highly seasonal and revenue may peak in particular times of the year and be non-existent in others. However, you still have to pay for loans every month so it’s important to plan for the “peaks and troughs” of income.
An owner says…
“Our holiday home is located at the beach and as a result we make 70% of our income in the summer months. In the early days we had to be careful to set aside some of the summer income to cover home loan payments in the quieter winter months.”
Expense of setting up
In contrast to long-term rental properties which may not require furnishing, holiday rental properties require a significant upfront investment in furnishing to ensure that an acceptable standard is created for guests. We’ll talk about what furnishings and facilities are required in Part 2 “Setting Up Your Holiday Rental Property”.
Time taken to manage the property
Some owners can find managing their properties time consuming and stressful, particularly if they are not “internet savvy” or experienced in running a business. Finding staff to clean and maintain the property may also be seen as an onerous task.
An owner says:
“Whilst we enjoy owning a holiday home and we earn good money from it we found that we just weren’t good at marketing or managing the property. We were happy to spend a bit more money to have an agency manage it for us. Many people like to do it themselves but for our personal situation it was the right decision for us.”
Use it and lose it
The irony of owning a holiday home is that often when you want to use it most, so does everyone else! If you use the property in peak periods you may live with the “buyers remorse” of lost income or in the opposite situation if you don’t use the property when you really want to you may feel that buying it has not been worth it.
An owner says…
“We’ve become so busy that we now have to book dates out for ourselves. We’ve come to terms with the fact that we’d rather have the income from peak season than spend the time there ourselves. We’ve found a balance by staying for a couple of days a month in peak season and enjoying more time at the house during off peak periods.”