Largom Guide to Holiday Homes
November 2, 2008
By John Cagney
Most people dream of owning a holiday home, whether it be a cottage in Connemara or a grand villa in Florida. But is it really worth starting at the bottom of the mortgage hill, for a couple of weeks holiday a year?
David Shaw, of Someplace Else Ireland (Dawson St, Dublin 2), urges people to view buying a property abroad as a “lifestyle choice”, not a capital investment. In other words, although it may be worth spending money on, don’t view a home in the sun as a money-spinner. “A foreign investment will rarely wash its face through rental income”, he points out. So be ready for those mortgage payments, unless of course you’re able to pay upfront.
Shaw suggests that those approaching retirement, their children grown up and mortgages paid off, are in an ideal position to invest in the luxury of a holiday home abroad.
“Unfortunately in the last few years we saw a lot of ‘keeping up with the Jones’ in the international property market.” Young people who invested in exotic locations before clearing their debts at home may be finding themselves in some trouble now, forced to cut their losses and ditch the second home.
If you’re considering buying abroad, Shaw recommends considering how much you will use the property. “It may not be worth it for just three or four weeks a year.” He sees the ideal owner of a home abroad as someone who will be able to enjoy it for several months of the year.
“Management companies rarely do what they promise,” Shaw says, stressing that renting out a property abroad is a hands-on job requiring spare time and internet skills.
So, you have the time and money and are eager to spend part of the year in your very own far-flung corner of the world. Location?
Someplace Else Ireland are giving a thumbs up for buying in America at the moment. “America, if not at the bottom of its market, is very close to it.” Shaw hints that there are real bargains in the Florida foreclosure market, presumably where people are losing their second homes due to the credit crunch.
“We have homes to sell which have gone from $400,000-$500,000 down to just $200,000.” Florida has a strong rental market and these homes will have almost guaranteed capital appreciation.
In Europe, the favourites have always been France, Spain and Italy. For many, there is no substitute for the old world Mediterranean culture and climate. The close proximity to home and secure political landscape are reassuring factors.
However if you are concerned with capital appreciation it may be prudent to look elsewhere in Europe. Shaw expects these markets to begin a slow slide over the next few years. He recommends Montenegro, on the beautiful Adriatic Sea, as the fastest growing market in Europe at the moment, with a strong rental potential.
Back home, with less money being waved around and prices settling down to realistic levels, a holiday home on west coast will have a strong rental potential in the summer months, but this will probably peak just during the weeks you want to use it.
Also we can only expect modest capital appreciation in the best of situations. So the message is, if you’re buying, make the most of your property.
The Ayiotas family in Dublin 7 invested in a home near Westport Co. Mayo three years ago. “Between myself, my mother and my brothers we are using the house almost every week of the year, so we haven’t looked for a rental income from it,” says Steve.
Budget 2009 is not kind on those owning or looking to buy a second home in Ireland. From January, a yearly tax of €200 will be due on all non-principal private residences, holiday homes and private rental accommodation. This tax is paid to the local authority and the government claim it is to ensure that those who buy a holiday home in a remote location will make some contribution to the local area.
However it seems that the big payers will be landlords with multiple properties, and in fact the tax may simply be passed on to those paying rent.
Also the Capital Gains Tax is due to be increased by 2% to 22% on profits from the sale of such properties, so that’s a likely dent in any capital appreciation you may hope from your holiday home.
There are a few universal rules when considering a holiday home. A structural survey is recommended, as is the case when buying any property. Look at the potential growth of the local area, both for capital appreciation reasons and also the fact that this will be your holiday for the coming years. Abroad, examine the political landscape, taxation and legal situation.
And the most important aspect of buying a holiday home – make sure you enjoy it.
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