School holidays are over yet again for many of you (collective ‘sigh’ from parents!). Did you manage to get away somewhere different?
Perhaps the fresh air and fun-filled days have you thinking about investing in a holiday home? If you’ve returned pondering the question of whether or not to buy a get-away place of your own, consider a few points before making an impulse investment decision.
The temptation of owning your own place to escape to in the perfect tourist town is appealing. While the promise of high yields is enticing, in order to get the most out of your investment, you may not be able to enjoy it the way you envisage it; a least not straight away.
Holiday homes may create a large amount of risk for investors, as many of these properties rely heavily on tourism periods which are undisputedly seasonal. While peak periods may produce high yields, there are also long periods of down-time, meaning your property may potentially remain vacant for long periods of time. The average period of high demand for holiday rentals is said to be in the vicinity of eight to ten weeks in a year. If the property is left untenanted for the remaining time, the cost of owning the property may outweigh the returns from investment.
The economy also plays an unavoidable role. If people can’t afford to holiday, that leaves an empty property and empty returns. Besides lowering your expected return, there’s little you can do to control this.
Another option is serviced apartments. While they may seem a fool-proof endeavour, often they impose strict leasing requirements, which investors are required to adhere to. This can create tension and restrict an investor’s control over the property in some circumstances.
If you are able to manage your property’s expenses in order to gain a positive return, the property may, over time, appreciate in value. As with any investment property, another benefit is that the property’s running costs may be tax deductible.
Wait until the rose-coloured holiday glasses are off and the high emotion has well and truly subsided, then think strategically and long-term when considering if a holiday investment property will positively add to your portfolio.