While the allure of an idyllic getaway may tempt many a buyer, there are some do’s and don’ts to consider before signing on the dotted line…
When it comes to holiday home investments, you have to consider all your options very carefully, says Adrian Goslett, CEO of RE/MAX, Southern Africa. ‘Based on the fundamental economic principle of supply and demand, a well-chosen holiday home can prove an excellent investment as, more
often than not, these properties remain limited by geography – and limited supply will lead to price growth.’
A well-chosen second home could also generate an income through rentals, or be used as a retirement investment, adds Adrian. However, as with any property purchase, you’d need to do your research to ensure that your investment is viable.
Adrian suggests five cardinal rules to follow:
1. Be sure that the property is situated in a popular location as this is important not only in terms of the capital appreciation over time, but also as a factor in attracting tenants.
2. Be sure you can afford it: calculate the acquisition costs such as a deposit, transfer and conveyance fees, as well as the impact of possible interest rate increases, ongoing monthly maintenance, security and insurance costs and the area’s rates, taxes and utility tariffs.
3. Consider the practical implications of managing a property in a different town and perhaps appoint a rental management company or realtor to conduct regular inspections and screen, select and place tenants.
4. Understand holiday rental trends in the area, especially if rental payments are to be used to help pay off the bond. Rental returns fluctuate widely for holiday homes, depending on the location and season. However, proximity to the beach and a spectacular view make a big difference to what can be charged.
5. Be clear of the tax implications: remember that any rental income needs to be declared on your annual income tax return. You will also be liable for capital gains tax should the property be sold or transferred.
‘It’s important to always bear in mind that, at best, the value of properties in holiday locations tend to be volatile,’ notes Adrian. ‘Generally speaking, during recessionary times, the leisure property market tends to take the worst knock as holiday homes are high on the list of expendable assets. On the upside, for those in the market to buy a second home, there are currently many well-priced ones from which to choose.’ That said, in today’s stressful and often financially-driven world the benefit of owning a leisure property is twofold: it provides a safe haven that will allow you to escape the rat race every now and again, along with a solid return on investment if you’ve purchased wisely and undertaken all the relevant due diligence.