During the boom we all got a little bit crazy about holiday home investment, fly to let, jet to let all looking set to bet big on the potential for a holiday home to earn a strong rental income. A lot of theories that became investment strategies during the boom have since been debunked, but can a holiday home abroad still be a good investment?
The answer is, of course it can, but as long as you choose it carefully with a realistic set of aims, i.e. one holiday home is not going to be a retirement fund in itself. In fact, speaking of aims, there was actually one holiday home investment dream during the boom that has since been debunked and that was the prospect of buying a holiday home with a mortgage and making enough from rentals to pay off the mortgage and put cash in your pocket. While this is sometimes achieved, it is very rare and you should never go into an investment relying on it.
Two Types of Investment
Now, how can a holiday home be a good investment? Well, for a start there are two types of investment, a buy to let investment where you profit from rentals, or an investment where you hold the property for a longer period of time and then profit from a capital gain on reselling (there is also buy to flip as well of course, but that is not relevant to holiday home investment). Thank fully the two aren’t mutually exclusive; you can earn money from renting your property out and then a capital gain from resale as well.
Buy to Let Investment Holiday Homes
Choosing Where to Invest
Holiday home buyers have the freedom of buying wherever they want, but a holiday home investor must sacrifice some of this freedom and choose a location that they would like to spend their holidays, but that also has a strong holiday rentals market. Thank fully, as you’d expect the two usually go hand in hand anyway.
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However, that isn’t all there is too it. If you just want a property to earn a little back then you can stop reading here knowing you’ve learned enough, but if you want a good investment you need to think even more carefully about location. You need to find a place where you can buy cheaply enough to still earn a solid rental yield after your usage is taken out. You need high occupancy and high rental rates in comparison to cost.
Choosing What to Invest in
Of course it isn’t east to find a place where property is cheap and rents are high, that you like to holiday in and enjoys good occupancy on holiday accommodation. However, you can make your choice a lot easier if you buy into an apartment hotel or a similarly structured deal. Right now there are many overseas properties out there offering guaranteed rental yields with personal usage included.
These take away a lot of the hassle, because you know exactly what you will be making after you take your usage. On top of that you can often find such deals with guaranteed buy back after a given period for 125-150 percent of the purchase price. Again, this takes the risk away from the investment.
However, many people believe that the developers and/or vendors factor the rental guarantee into the sale price, and this is certainly true in some cases. At the same time, not everyone is happy with just two weeks or maybe 4 weeks of their own usage, although you may have to accept low usage to make a good investment and such deals can be your only way to have a good investment with some usage at peak times.
But, if you really are set on having the freedom of no such deals then the best way to meet the criteria laid out above for a good investment holiday home is to bring the what into the equation when you are still choosing the where.
For example, apartments normally have the best rental yields in a given location, but villas will often have the bigger rental pool and so can achieve better occupancy, and can give greater flexibility where personal usage is concerned. This is increasingly true as more and more families stop taking package deals and start making their own packages from flights to accommodation.
Capital Gains Holiday Home Investment
This is much simpler. For a start almost every bricks and mortar property almost anywhere in the world will appreciate in value over the long term, especially over the term of ownership on a holiday home, which is more often than not 25 years minimum. Thus, if you plan to keep the home to yourself, solely for the use of you and your family, then you can pretty much choose where you like to holiday the most. It is only if you plan to earn from rentals as well as capital gain that you need worry about any of the above.
Good Holiday Home Investing
Those choices sure do look like a lot of work, but when you get it right it is possible to earn a 3-4 per cent rental yield as well as having 6 weeks of personal usage if you choose the right property in the right location. That doesn’t sound spectacular, but considering the free accommodation and great holidays it is indeed a good investment. Of course, there is always the guaranteed 5-7 per cent yields on offer with 2 weeks for those who want to make it simple.
