The Pros and Cons of Investing in Holiday Home/ Apartments

Many people fall in love with the idea of owning a holiday home/ apartment due to lifestyle purposes and neglected on the important fundamentals of investment. Hence if you plan to invest into a holiday property in the future, make sure you are purchasing with your head and not just your heart.
Before you would jump into any investment, ask yourself two simple questions:

Why am I buying real estate in the first place?

What is the end result does this particular property need to produce for me?

Let’s dive in to some of the pros and cons of investing in a Holiday Home:

The plus side

1. Income Generation: While making money from real estate requires a lot of research, analysis and insight, buying in an established vacation destination ensures that your property will see continuous exposure/ demand from travellers. Like any investment property, you can offset holding and borrowing costs with rental income. A well-managed/ fully furnished holiday home should generate good levels of annual income/ rentals for the owner.
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2. Second Home/ Asset/ Getaway Paradise: One of the great advantages of owning a holiday home is that you get unlimited access and can visit whenever you want.
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3. Less Hassle: By owning a vacation home in your favourite destination, it eliminates the need of forward planning and allows flexibility for spontaneous family trips without the need to worry about the accommodation especially during peak season.
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4. Cost saving: You can even choose to manage the property on your own and save on some of the management fees. Furthermore, it is easy to rent out your properties by using websites like Airbnb.
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5. Capital Growth: If bought in the right location, you will definitely see some capital growth potential where this property appreciates in value over time.
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6. Retirement Home: This holiday home could turn into a place to retire which gives you the lifestyle you are looking for come retirement.

Now to some cons:

1. Maintenance and Upkeep: The biggest sole issue with vacation home ownership is the maintenance and upkeep of the property. As compared to a hotel where you only pay for the nights you use the property, with your own home, you will need to take full responsibility for the maintenance of the property. Some of the costs involved are property taxes, utility bills and insurance, cleaning and maintenance cost etc as renting out the property on short-term leases is more likely to gain more wear and tear due to people moving in and out on a regular basis.
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2. Long term Commitment: A vacation home is a commitment and will consume time and energy- from thinking about how to furnish it to visiting it regularly to make sure the condition of the property is well maintained. Managing a holiday home is a much harder work compared to investing in a “buy-to-let” property.
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3. Holding Cost: It will turns into a burden for you if you are not able to find a tenant for your property. Holiday homes tend to have seasonal demand, finding a tenant outside of popular holiday times can be hard, and the only times when finding a tenant is easy are the same times when you want to use your holiday home.
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4. Pricier: Holiday homes in certain location tend to be more expensive as compared to residential properties.
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5. Additional costs: If you have purchased a resort apartment there are also several costs that you need to be aware of. The more amenities available (swimming pool, gym etc), the higher the costs. You might also need to pay for cleaning fees, agency fees, management fees, advertising cost etc.
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6. Limitations: When it comes to selling your holiday home, it might be difficult to sell as you are only targeting a limited segment of the market.
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7. Unstable rental yield: Seasonality and competition can affect the rental yield of your property. Rent may fall short of expectations during extended periods of vacancy, which can place the property’s financial viability under pressure.
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8. Unpredictable growth: Holiday homes are more susceptible during periods of economic downturn as people tend to be tighter on their budgets and limit their spending hence you might not achieve the capital growth that you want. Furthermore, it will be harder to sell off your property quick when times are tough which will cause a strong financial implication to you if you could not repay the monthly mortgage repayments.
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Most investors should be looking for properties with long term stability and growth, not the volatility offered by holiday properties.

If you’re a first time investor who requires consistent returns and good capital growth, stay away from investing in holiday homes. But on the other hand, if you are an experienced investor looking for diversification in your portfolio and lifestyle is an important consideration for you, holiday accommodation is worth thinking about. Few points to always take note:

1. The Price: This is the single most important factor to consider from the perspective of whether your property will make a good return on your investment.
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2. Ensure you purchase in a prime location: always do some survey on the facilities and amenities nearby.
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3. Understand how holiday rentals work: do check on the supply and demand around the area.
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4. Look for professional management.
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5. Do your calculations how are you funding the purchase of the property? What are the hiding costs? Do you have the holding power?

Happy investing always!