Would a Holiday Home Make a Good Investment?
If you are looking for ways to invest so that your money can work for you, then a holiday home may be worth considering. Property is an option and it can be attractive because you can get a mental picture of a holiday home. You can walk through it and know it’s real while stocks and shares and pensions can feel unfamiliar.
Before you decide to buy a holiday home what should you take into account?
Access to Capital
In the short term will you need access to the money that you are investing in a property? To sell a home takes time so your original investment is not readily available to use elsewhere. You should only considering investing in property for the long term because an investment property is illiquid.
Make a Profit
Consider if the property will give you a profit if it is only rented 50% of the time. It’s not realistic to expect a holiday let to be booked 100% of the time so 50% rental rate is a guideline for profitability.
Do you want to be in a holiday letting business? How much of your time will be spent managing the property? Do you enjoy being a plumber, a decorator, a handyman? Is DIY your thing? What will the fees be to have someone else manage this property?
If the holiday letting market changes will you have enough savings or profit in reserve to be able to ride out the slow period. If the housing market changes how will you be able to cope if it takes longer than anticipated to sell the property?
Mortgage Interest Rates
If you have a buy-to-let mortgage, will the rental property produce enough income to cover the rise in your mortgage payments if interest rates rise? Interest rates are at an historical low level right now. So there is a good chance that mortgage interest rates will increase. Will you be prepared?
Income vs Expenses
Take into consideration vacancy rate when calculating your income from the property. Also consider expenses such as management fees, cleaning fees, repairs, advertising, legal fees, insurance and taxes. Will you be making a profit?
Buying a holiday home is a big expense and a big decision! After you consider all of your options and think of the variables that could impact your buying decision, you can make an informed decision. Owning a holiday home can be rewarding as an investment. And as a place to spend time with your family and friends. Or just to get away to and recharge your batteries.
Take the time to consider the pros and cons of owning a holiday home. The right holiday home could reward you now and in the future.
If you would like help deciding if owning a holiday home is right for you, get in touch and I’d be happy to help. My email is Julie@JulieTheMoneyCoach.com
Julie Feuerborn, CFP© is Julie The Money Coach. Clarifying the financial world for her clients is her passion and she founded her business to empower women to take control of their financial destiny. She coaches her clients about what they need to know to make the best financial decisions for them. She teaches them how to have financial peace of mind and ultimately financial freedom.
If you’re planning for your retirement and want to know where to save, Julie can help.
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