Holiday homes are great if money is no object, but risky as a long-term rental investment.
After visiting the same place year after year, many visitors end up seriously considering buying a holiday home. These are often the homes that dreams are made of, but what should a potential buyer know before purchasing a holiday home.
WHERE TO BUY - Britain ticks all the boxes for what you could want from a holiday. City breaks: London, Bath, York; seaside escapes: Brighton, Cornwall, West Wales; country pursuits with natural beauty: the Lake District, the Cotswolds, Snowdonia National Park – we have it all. There is no ‘right’ place to buy, so decide what you want from your holiday and go from there. If you are buying for your own use, think about whether you will use it for weekends away or longer holidays. If you want it as a second home for the weekend, ideally it should not be more than two hours from where you live. Are you really going to want a long journey at the end of the week, however pretty your second home? If you plan to use it for longer holidays, a longer drive to your second home shouldn’t cut too much into the time you get to enjoy there. However, if you are buying and intend to rent out the property, it is wise to take into account prices in the area in case you decide to sell in the future, competition from existing holiday lets and potential earnings from rent and if/how it varies through the season. Although a city dwelling tends to not be restricted by traditional holiday seasons. It is also a good idea to check if there is a strong demand for a holiday rental property in your chosen location and who usually visits the area. It is essential to get to know your potential customers.
WHAT ARE THE BENEFITS OF A SECOND HOME IN THE UK? - If you are planning to rent out your second home, there are numerous benefits worth taking into account. For a start, if you plan to rent, any money you earn could be put aside, providing a safety net for later life. But you will have to pay tax on profit from the property. Second homes can receive a 10% to 50% council tax reduction, but you will be liable for capital gains tax if you choose to sell. You might be able to claim plant and machinery capital allowances on your furnished let for furniture and tools used for the upkeep of the property. If you plan to use the property privately as well, you will only be able to claim for a fraction of the maintenance cost: ie, for the period it is being let. The tax benefits of a second home are more pronounced if you choose to rent it out and it is worth looking into this seriously. If you choose to sell your second property, you may benefit from capital gains tax relief, business asset rollover relief and entrepreneurs’ relief. But there are certain regulations and terms you must meet, such as how many days during the year you have let the property out for.
DO NOT OVERLOOK… - If you buy your second home in a tourist hot spot, there are a few things that you should consider. Parking can be a problem, depending on where you choose to buy. During the height of holiday season on-street parking can be taken up by tourists visiting the area. On top of that, the time it takes to get about can double during peak times, so if possible, use other forms of transport, such as a bike, or boat if you choose a coastal location. If sitting in traffic doesn’t sound like your idea of a relaxing weekend away, consider a holiday property slightly further from a main town or your desired location. Love the idea of sitting in a large garden topping up your tan? (If the sun decides to show its face, that is.) If you’re using the property solely for holiday purposes, you will probably have less time to maintain the garden. It is worth investing in someone to upkeep the house when you are away. If not, as lovely as a big garden sounds, consider going for patio or decked homes. After all, your new neighbours won’t be your biggest fans if your garden is a mess.
IS IT THE RIGHT TIME TO BUY? - You might think not, but the economic downturn has seen people holidaying in the UK more frequently, so a holiday home, whether it is for you or to rent out, is defi nitely a good idea. House prices fell in 2007/8 and have remained low (although prices are starting to rise again), so you could be fortunate enough to pick up a real bargain. But just remember to think about the potential upkeep costs in the future and not just the price of the property. It is no good spending your entire savings on a dream property and leaving nothing in reserve for general upkeep and maintenance bills.
WHAT ABOUT A TIMESHARE? - If you don’t want to commit to buying a second home you can always consider a timeshare property. This is a form of ownership where multiple people have the right to use a property for a set amount of time during the year. The options are either a fi xed week or a ‘fl oating’ or rotating week, where timeshare holders either request a specifi c week or are placed on a rotating calendar. Timeshare can be risky: for example, selling it can be diffi cult and you normally will sell at a loss. There can also be high maintenance fees to pay. So talk to an expert and if you can, other people who have a timeshare at your property to fi nd out all of the pros and cons. If you are not keen on a timeshare, you could always consider buying a property in a holiday village. These sites are managed, so the upkeep is taken care of by someone else. Great for a fuss-free getaway.