Be realistic when buying a holiday home
News Article Date: Monday 27th of July 2009
With the news that the British pound is still holding strong in countries like Egypt, Tunisia and Turkey where interestingly property is still highly affordable too, many Britons are still actively contemplating buying a holiday home abroad as an alternative investment.
Some may ridicule this idea in light of the property market crash we’ve seen in Britain, however it should be noted that not all nations have a boom bust economy like we do in the UK. Others may question the validity of thinking about a holiday home as being an investment – and yet in each of the three nations mentioned above, tourism remains a strong economic contributor and a sector of the economy that is growing.
When you also add in to the mix the fact that an investment made into a straight savings account in the UK will net you little more than 3% per annum at best at the moment, (at best indeed!), you can potentially gain substantially more in the form of rental income and capital appreciation if you invest in a well located property abroad. Therefore, the argument for buying a property abroad as an investment stands…however, more than ever it now pays to be realistic when buying a holiday home abroad as we shall demonstrate.
Once upon a time – in about 2003 roughly – a holiday home abroad was the must have essential item of the year, especially for all those keeping up with the Joneses, and all those keen to diversify their portfolio and make their money work for them in a novel and amusing way! France, Italy, Portugal and Spain were the favourite hotspots, but as they gained in expense, so other more diverse and interesting markets emerged as investment potential property places for those who wanted more for their money – more property and more opportunity for investment growth in the form of capital appreciation, that is.
As the property bug bit us gullible Britons, (admit it, we Brits are gullible when it comes to property markets - otherwise we wouldn’t have bought into the last boom and believed it could go on forever and that the then chancellor Mr. Brown could really prevent the inevitable bust), we became more gung-ho with where we were willing to buy, what we were prepared to invest in and how we were happy to purchase.
Viewing trips became buying trips, people bought not only off plan but unseen and over the internet, and less than reputable agents and developers in markets as physically far apart as Dubai and Bulgaria got fat and got rich off our backs. In the meantime, a very small percentage of those who have bought second homes abroad as both a holiday home and an investment property have done as well as they would have hoped.
Because most people buying property set their expectations far too high.
We cannot and do not blame these people – we have been guilty of having high expectations ourselves that have been dashed!!! People buying homes overseas bought in to the ‘property abroad’ hype, they believed that their ‘place in the sun’ would never cause them a sleepless night or result in them facing big bills and tax demands. However, if these people had done their due diligence and gone abroad in search of an investment property having left their rose coloured glasses at home, they could potentially have done very well thank you.
And if you are thinking that adding a holiday property abroad to your investment portfolio now will reap you dividends, you may very well be right. But you have to tread cautiously and you have to be realistic: -
1) Select a market where there is strong tourism demand that is sustainable. Think Spain rather than Bulgaria therefore (and we don’t mean literally, we just mean in terms of picking a nation with a solid tourism appeal).
2) Select an accessible nation where transportation links are robust. I.e., do not buy in Brazil if you want to let your home to masses of Britons throughout the year. Yes Brazil is potentially a great market – but not if you want to let out to British families who don’t particularly like long-haul flights at the best of times, let alone when there is a recession going on.
3) Know that your property will cost you money – over and above the asking prices, taxes and lawyers’ fees. Things break and go wrong – and they break and go wrong more often and more spectacularly when you’re not there keeping a keen eye on the home 24/7. So you may have to reroof, industrially clean, reline the pool or buy a new central heating system. Be at least mentally prepared if not financially prepared!
4) Taxes and bills tend to be regular occurrences abroad as well as at home – accept this fact.
5) Bureaucracy is far worse in a foreign land and in a foreign tongue – or so it seems at least!!
6) Your property will languish empty for months at a time…even if it is a popular rental bet. This is because most tourism markets are seasonal. The reality of this is no income and potentially greater outgoings than income.
7) Tenants can sometimes seem like more hassle than they are worth and property management companies can seem like more expense than usefulness! Can you cope with these facts?
8) If you buy a property as a holiday home just for you and your friends, you may find that your friends take advantage of your assets and exploit your friendship. Be prepared to lay down ground rules and set out your expectations from the outset – before you ever hand over your keys. Those who were going to abide by your rules naturally will not be offended, only slightly surprised perhaps…but the others will know that they can either lump it or leave it. It will save both your sanity and the friendships that are worth saving!
9) A property is a long-term commitment if you want to make money from it.
10) And finally, you need to love the land you’re buying in as well as the home you’re purchasing. There’s not much worse than being stuck in a house that has lost all of its charm and appeal because you’re surrounded by people you hate or who hate you. So tread carefully and be savvy.
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