Owning a get-away home in a beautiful destination, escaping the rat race for a long weekend in Portugal or jetting off to the Bahamas for the summer holidays: is buying a holiday home all about owning a little piece of heaven or is it a recipe for trouble in paradise?
Holiday home ownership became popular in the early 2000s and has increasingly become a mainstay of UK life. An estimated 246,000 people have a holiday home in a foreign country. In this blog we look at the pros and cons of owning a property abroad.
What are the benefits of buying a holiday home abroad?
A bolt hole you can escape to at the drop of a Panama hat
Fancy escaping the drizzly UK summer and having a last-minute holiday in peak season? With a holiday home you are just a flight away from your perfect getaway. No trawling through travel and review sites trying to find a hotel that isn’t extortionately priced or fully booked; you have your very own perfect home from home, teabags in the cupboard and wine in the cellar, ready to go.
For most people, the greatest advantage of a holiday home is being able to get away at the drop of a hat with minimum fuss.
Rent it out for extra income
If you choose to rent out your holiday home when you're not using it, you would benefit from another source of income.
Most people indulge in a holiday home abroad to use for specific holidays, or in retirement. A growing number are investing in properties abroad purely for the return on investment. They are tempted by developments promising guaranteed annual yields of 6% or 7%.
A property management agency will seamlessly manage the entire rental process for you. It’s important to realistically consider how cost-effective renting out holiday home will be. The rental income should cover management fees, taxes, bills, upkeep (your mortgage if you have one) and make a profit. Like any business profit, you could enjoy it or reinvest it into making your holiday home even better.
It can be risky to invest in a buy-to-let holiday home that relies on rental income to pay the mortgage. Most holiday destinations have peak seasons and off-peak seasons. The peak season must make enough profit to cover the mortgage in the off-peak season too.
Many factors can cause travel destinations to suddenly or gradually become unpopular. This could potentially mean you are forced to sell for a lower price than you originally purchased the house for. This blog will help identify if buy to let is viable.
Friends and family can visit
You will find yourself very popular with your friends and family when word gets out you’ve bought a holiday home.
Being able to host your friends and family members on holiday with you in your own home is a great advantage of having a holiday home.
It’s great for the whole family too. Your grown-up children can take their friends or their own family on an affordable budget.
Like buying a property in the UK, it can be a great investment. If the local area thrives and house prices rise, then you could end up selling for more than you originally brought it for. If over the years you put time and money into developing and improving the property, then this also likely to help increase its value.
However, like any investment your capital is at risk and investments can fall in value as well as rise.
Saving money on holidays
When you own a holiday home, holidaying becomes a lot more affordable. All you require is a flight and spending money. If you go abroad often, in the long run you could end up saving money.
What are the drawbacks of buying a holiday home abroad?
Limiting yourself to the same holiday destination
As much as you love a certain destination, you may have a thirst to explore and discover the world.
Yes, you can go on holiday to other places, but the big question is will you get bored of that destination? Will it lose its charm after trying every restaurant, tourist attraction, or local delicacy multiple times? If your trips get fewer then will you get enough value from your investment?
There are more alternatives to buying a holiday home than ever before; the tourist accommodation market is booming. There is an extensive range of holiday rental properties on Airbnb all over globe. Airbnb has everything from comfortable and affordable to luxury or unusual. You could stay in a treehouse in Bali, a glass bubble in Mexico or an adobe dome in Texas.
There are also many beautiful luxurious hotels you could visit instead.
Having to maintain your home
The dream of early morning swims in your private infinity pool while gazing at a beautiful sunrise can be quickly dampened by the reality of maintaining a house.
Perhaps you like the luxury of not having to do the DIY, cleaning or change the sheets on holiday. That’s not always possible if you have your own holiday home. Usually, it falls on you to update the interior, fix things and clean. Your holiday home may feel a little too much like a home from home in all the wrong ways.
Another dilemma is taking care of your holiday home from so far away. When your holiday home is an eight-hour flight away and you don’t have anyone watching it for you, it can be a concern. You can’t be there within the hour to fix a flood or even to notice a problem.
A great option is to hire a property management company for an ongoing fee. This ongoing cost is likely to be a small price to pay to safeguard your home and for peace of mind.
Many initial and ongoing costs
All too often the price of the property is just the starting point when it comes to the ongoing costs associated with owning a holiday home. For instance, there will be the purchase fees and taxes, local (council) taxes, utility bills, general maintenance of the property, furnishing the home, and any potential service and communal fees in developments or pool cleaning and gardening, not to mention fluctuations in mortgage rates.
Currency exchange rates
Buying a holiday home abroad will entail buying and spending in another currency. This means you need to exchange your pounds Sterling for Euros or US dollars, for example. You may also need a bank account in the country of your choice.
The fluctuations of exchange rates are totally out of your control. On some occasions you will win on the exchange and on others you will lose. Simply accept it is a rite of passage, but don’t ever buy your currency at the airport.
Every country has its own laws, taxes and regulations so if you do purchase a holiday home abroad you will need to swot up to avoid any costly mistakes. Read this blog to learn more about the hidden dangers of overseas property.
The Brexit effects
Currently, we don’t know the true effect Brexit will have on the travel market. This has caused some Brits to become cautious of purchasing holiday homes in the EU. The potential effects of Brexit could include:
- Needing a visa to travel in Europe.
- Fewer flights to the UK from small EU airports, changes in flight paths and price rises.
- Difficulties securing a mortgage.
- Having to pay more taxes.
- Fluctuation in the GBP exchange rate.
There are many things to consider when deciding whether to buy a holiday home abroad. It’s important to do your research and crunch the numbers. Speaking to your financial planner will help you to identify if buying a holiday home will be economical for you. If so, they can advise you how much you can afford to invest in your property abroad, initially and ongoing. This blog is also helpful in deciding location and property. Our helpful clients have also documented their experience and top tips from buying their holiday homes; here is a client blog on buying a ski chalet and here is one from buying a home in the sun.
If you would like to speak to a chartered financial planner about purchasing a home abroad, contact Capital today.