Can a holiday home make a good investment?

We all dream of owning our own holiday home and enjoying endless sunny days by the sea. But is buying a holiday home really a good financial decision? Is there a way to make a holiday home purchase work as an investment as well?

We’re all guilty of spending summer holidays gazing into real estate agent’s windows and wondering if (or when) we’ll be able to afford our own slice of paradise. And if you take out a holiday home rental when you go away on holidays, you’ll be fully aware of how much they cost and the great returns they can bring!

However, owning your own holiday home and owning an investment property in a holiday location are two very different propositions.

Buying a holiday home for yourself

If you are buying a holiday home entirely for your own use, your primary considerations will always be about how you and your family will use the property. You’ll be looking at the location to assess whether or not it will facilitate a good holiday for your family members – is there enough accommodation for the whole family, does it provide the sporting options and facilities your kids will want, is it close to your relatives if that is important to you?

Buying a holiday home for your own use could be a good financial decision if you have the funds to pay the mortgage on your second home without the assistance of rental returns, and you buy in the right location.

However, the right location is key to ensuring your purchase proves to be an increasingly valuable asset over time.

When choosing a location that will help your property increase in value, here are some points that might help:

• The property is within a two hour drive of a capital city or airport
• The location has lifestyle facilities such as shopping, quality cafes and restaurants
• The location offers attractions such as vineyards, watersports, amusement parks etc.
• The market is not oversupplied with holiday homes that can’t be sold or rented.

Buying a holiday home as an investment

When buying a holiday home for investment purposes, your considerations and objectives will be different than if you were buying a property for your own use. That’s because the primary purpose of an investment property is to earn you money, not provide you with a second residence. When buying any investment property, it is very important not to make an emotional decision – profit should always be your first consideration.

Several things determine whether or not a property may make a good investment:

• Will it be easy to find tenants?
• Will it earn enough rental returns to cover your costs?
• Will it provide you with a capital gain over the period of time you plan to own it?
• Can you cost-effectively improve the property to increase your capital gains?
• Does the property have the access and lifestyle considerations that make a good holiday home? Will these attractions develop further in the future?

When making your property investment, you also need to remember that getting a regular rental return from a holiday investment property may be more difficult than with an ordinary investment property. That’s because demand for holiday homes tends to be seasonal. It may be easy enough to find tenants during the peak summer holiday season, but it might not be so easy to find them year round – especially for seaside purchases.

So, where does that leave you in terms of enjoying your holiday investment home for your own use occasionally? Trying to get the best of both worlds – a holiday home for your family that is also an investment that covers its own costs – may prove to be difficult. However it may be possible to rent out the property some of the time to help cover some of your costs.