Property investment tip 31: Are holiday homes a good investment?

Every now and then, everyone dreams of that perfect holiday home. A place in the sun or winter sun by the beach, lake, mountain, forest or ski slope, to name a few.

But are holiday homes a good investment?

It depends. If you buy a holiday home for the enjoyment of your family and friends, then this is priceless.

However, from a monetary viewpoint, I believe many holiday homes are not good financial investments. Let me tell you why.

You lose money if your family vacations in the high season

Holiday homes tend to be in destinations which rely heavily on tourism. And so these destinations often have two seasons: the high season, which attracts a large number of tourists, and the low season, which is when the holiday period ends.

As a holiday home investor, you will make more money renting your property during the high season.

The problem is many landlords vacation in their holiday home during the high season. Such landlords often rationalise that they are saving money on their vacation because they do not have to pay for accommodation or dine out as frequently.

But in actuality, these landlords could be losing large sums of rental income. Remember, rental prices for holiday homes in popular locations can double, triple or even quadruple in the high season.

And so, holiday homes are commonly rented out in the low season – when there are fewer people in town – at a reduced rate. Many owners believe this will compensate for the rental loss incurred from their families vacationing in the property during the high season.

This is not the same ‘mindset’ or ‘logic’ people would have if they were buying an investment property.

Buying property with the ‘heart’ and not the ‘head’

When buying a holiday home, many people make decisions with their heart, and not their head. Thus, the rationality one uses as a property investor is often sidelined. (Read my tips on buying a property abroad).

For example, location is the most important factor when buying a property – after price. Buyers of investment properties search for locations with a strong a rental market. But buyers of holiday homes search for locations which match their dream.

Buyers of investment properties search for good transportation links and a diverse economy to attract more tenants. But, buyers of holiday homes search for properties within reach from an airport and destinations with a healthy (and often seasonal) tourism industry.

The additional cost: Furnishing your holiday home

Holiday homes also need to be furnished. The benefit is that you can ‘live’ in the property immediately. The cost is that tenants do not care for your furniture or belongings.

Excessively used or damaged furniture will make your holiday home look outdated no matter how clean your property is. (Read more on why your rental property should be unfurnished).

But holiday homes are priceless

My parents in-law bought a holiday apartment in the French Alps about five years ago.

My in-laws were making no money from their property despite its prime location. Then I realised it was because they were offering free week-long accommodation, in the high season, to each and every one of their family members and friends.

At first, I was baffled as to why they were intentionally choosing not to profit from the property, especially since they were approaching retirement.

Then, one day, after many years of reflection, I finally understood that to my parents in-law (and also to thousands of people) holiday homes are bought, fore-mostly, to share happiness and memories with family and friends. This is priceless.

So, what are your thoughts on investing in a holiday home?

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