Everyone dreams of their perfect holiday home. A place in the sun or winter sun, by the beach, lake, mountain, forest or ski slope.
But are holiday homes a good investment?
It depends. If you buy a holiday home for the enjoyment of your family and friends, this is priceless.
However, from a monetary viewpoint, many holiday homes are not good financial investments. Let me tell you why.
You lose money when your family stays at your holiday home in the high season
Holiday homes tend to be in destinations that 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 rationalise that they are saving money on their vacation because they do not have to pay for a hotel or dine out as frequently.
In actuality, these landlords are 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.
Instead, these landlords rent their apartments – at a reduce rate – in the low season when there are fewer people in town. This is not the mind-set or logic people have if they were buying an investment property.
Buying property with the ‘heart’ and not the ‘head’
When buying a holiday home, people often make decisions with their heart, and not their head. Thus, the rationality one uses as a property investor is often side-lined. (Read my tips on how to become a property investor).
For example, location is the most important factor when buying a property. Buyers of investment properties search for locations with a strong rental market. But buyers of holiday homes search for locations that 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 strong tourism industry.
The additional cost: Furnishing your holiday home
Holiday homes need to be furnished. The benefit is that your tenant can live in the property immediately. The downside is that tenants do not care for your furniture or belongings.
Excessively used or damaged furniture will make your holiday home look out-dated, no matter how clean your property is. (Read more on why you should not furnish your rental property).
But holiday homes are priceless
My parents in-law bought a holiday apartment in the French Alps about five years ago.
My in-laws make no profit from their property despite its prime location. That’s because they offer free week-long accommodation, in the high season, to 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 are approaching retirement.
Then, one day, after many years of reflection, I finally understood that to my in-laws (and also to thousands of people) holiday homes are bought with the purpose of sharing happiness and memories with family and friends. This is priceless.
So, do you agree that holiday homes are not good investments?
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