HOLIDAY HOME INVESTMENTS - IS IT WORTH IT?
- Written by Melanie Toye, June 8, 2014
The idea that everyone wants to own their own piece of paradise
As a child I remember the ideal adult's dream: buy a home and then buy a holiday home. But when I grew up and after I bought my first home,
I went to visit a mortgage lender to see if I could afford to buy a holiday home.
The mortgage lender came back with, 'the banks do not lend often to those who want to buy a holiday home.'
'Why?' I asked.
His response was simple. 'Holiday homes are great for the high season but risky in the low season and even if your high season profits were enough to scrape through the low season, the banks still consider it a risk to lend.'
What is your reason to buy a holiday home?
Perhaps you want a holiday home to have a second home you can visit on the weekends. Unfortunately, during the high season you will not be able to visit, due to paying holiday stayers. On the one spectrum, it is a holiday home for you, but on the other hand, you need to lease it out to ensure the mortgage gets paid.
The other consideration is, you might love to visit the area - you want to buy the holiday home in - every weekend, however there will be a time where you will want to holiday somewhere away from your two homes. And this is absolutely fine, however for some, they feel guilty if they have a vacancy at their holiday home and they are holidaying somewhere else.
For some, having a holiday home secures a place to live in later in life, once they are ready to retire. Your favourite location can now be your primary residence during retirement. And you can either sell your other home to pay towards your new life stage or rent it out to keep an income flowing through.
When you are considering buying a holiday home, first look at all your options and ask yourself, what do you want out of this investment?
Is it purely so you can enjoy another home away from home, in one of your favourite locations? Or is the purpose of the investment, to make another form of income from it?
You might want to compare buying an inner city apartment to a holiday home, to see what benefits and disadvantages lays ahead for both options. And when doing this, it is also important to consider if you are able to get a long-term lease (six months to a year), rather than a short-term lease (anywhere from 1 night to 5 nights or more), the costs of maintenance and cleaning after each holiday stay might be more cheaper overall for a longer-lease term. However longer-leases are generally sought in inner city locations, which may not be located in your holiday destination.
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