The purchase of a holiday home may sound nice and glamorous, but you have to leave the fantasies aside to take on this purchase like any other property. You’ll have to consider the expenses that will be generated in terms of taxes and maintenance of the house, especially if it is empty for most of the year.
Also, you need to take care of the property, especially if you decide to use it as an investment and put it up for rent as the best option for you, whether as a holiday, short- or long-term rental. In any case, you should think about whether you would manage it directly or transfer it to a professional company.
This begs the question, are you ready to buy a holiday home? These are the key questions to ask yourself before embarking on the purchase of a second property.
Why do you want a holiday home?
Before looking for a holiday home to buy, first consider the reasons and goals you want to achieve. Do you want to use it personally or as an investment? What will you do with it the rest of the time?
For Steve Schwab, founder of Casago, a property management and holiday rental company, the most common reasons for buying holiday homes are the following: having a home in your favourite travel destination, having a retirement home, buying it for rent or as an investment, buying it in order to sell and then make a profit. "Some of these goals can clash and be hard to manage," he says.
Experts warn that emotions and attachment must be set aside if you're going to use housing to earn money. "Keep your emotions separate, it's a business," they state.
Do you have time to manage the house if you rent it?
Many landlords underestimate the time and work involved in owning a holiday home. There is a clear time commitment that includes marketing, maintenance or dealing with tenants, whether short or long term. On the other hand, there is also a monetary commitment, for example, travel costs, or what you earn and what you must pay in taxes, a mortgage, community rates and so on.
"Some people who have bought a second home have found that they didn't buy to go on holidays, they effectively bought a new job," says Schwab. The expert estimates that homeowners spend about seven hours a week managing a holiday home.
In addition, self-management of a property means being available 24 hours a day, 7 days a week, in case tenants have any questions or problems.
Will you self-manage the rental or hire a company?
Some holiday home owners may enjoy handling the management process of the themselves. However, for those who live some distance away, it may be better to hire a property manager.
Schwab suggests that "a good calculation of profitability is to see how many hours a week it takes to manage the property and divide the hours by the property manager's fees. This can help homeowners determine if a management service is worthwhile.
For homeowners who want to keep the home for personal use, but don't go there on a regular basis, you can hire a manager to keep an eye on the house when you’re not there. This will ensure that the house is kept clean and in a good state of repair.
Do you want short- or long-term tenants?
Renting a home in Airbnb or Rentalia could be the most lucrative option, but like everything, it also has its disadvantages. Some downsides include cleaning fees, more wear and tear on the property, and keep in mind that in the off-season you might not fill the house as much as you'd like.
Renting on a long-term lease is the other option. It’s positive because you won't have to manage the property on a day-to-day basis, but there are also areas where it's more difficult to find. You should also take into account if you would prefer it throughout the whole year, and divide the rent by 12 months, or maybe consider a holiday rental, if the house is in a popular destination in summer.
And, above all, if you are going to want to enjoy the house yourself, "it would limit how often you could enjoy the house if a tenant signed a six-month or a year lease," says Schwab.
How much does it cost to maintain the property?
Like any primary residence, a holiday home comes with a mortgage, taxes, and insurance. In addition, there will likely be additional costs such as maintenance, repairs, utilities and other community-specific charges.
"Turning a holiday home into a short-term lease carries even more costs. It's important to understand that holiday rentals have a higher operating cost than traditional rentals," says Schwab. "The normal wear and tear of vacation rentals is disproportionately greater than long-term rentals due to the high turnover of people who constantly come and go.
Follow the link for more advice on buying a holiday home: Are You Ready to Buy a Vacation Home? (Realtor)