Your holiday home investment
Many of us dream of our own little piece of paradise – a place where we can go when we feel like leaving the world behind. While holiday homes are often seen as an extravagance, luxury and investments aren’t always mutually exclusive.
“A well-chosen holiday home can be the source of great fun for the family for many years, as well as a generator of regular income, with potentially good capital growth completing the picture,” says Elwyn Schenk, Pam Golding Properties (PGP) area principal in Umhlanga and Umdloti.
Adrian Goslett, CEO of RE/MAX of Southern Africa, agrees, but warns that putting in the time and doing the research to find the best property investment is a pivotal part of finding a holiday home that can be sold at a profit at a later stage.
“It is vital for any investor to study the market and know how and where to invest in order to make the most of the current conditions. Irrespective of the market phase, one still needs to take into consideration all relating factors before making a decision.”
He adds that property price growth is fairly consistent over time, making it easier to more accurately predict the potential return on i nvestment with a property purchase. “Unlike other investment options, there is no need for a property investor to constantly watch the market to make a profit,” he says.
Finweek compiled the ultimate have-your-cake-and- eat-it buyer’s guide to buying a holiday home as an investment.
1 The home
“Buy as though you are buying for yourself,” says PGP’s Basil Moraitis. “If you wouldn’t like to live there, neither would your prospective future buyers. Also, don’t overcapitalise if it’s your intention to sell in the medium term. Good, well-executed finishes are better than poorly executed over-the-top finishes.”
Schenk adds that an easy walk to the beach or shops, finishes that are easy to maintain and clean with constant passage of sandy feet, and a layout that caters for divergent family needs, are some of the attributes of an attractive holiday home. ■
We hate flogging a dead horse, but location remains a key consideration when buying investment property. “Buyers need to ensure that they research the area and establish the level of property appreciation it has achieved over the past year. Other factors to consider are how well maintained the area and its facilities are, as well as the general market conditions prevailing in the suburb,” says Goslett.
Moraitis says that security and good municipal services can make or break a suburb. “A well-managed suburb with good infrastructure and an efficient City Improvement District will ensure the value of your investment.”
Coastal properties might be easier to sell when the time comes to cash in on your investment. Carol Reynolds, from PGP, says in addition to the lifestyle element of a coastal investment, properties on the coast with sea views generally hold their value and make good investments. ■
Holidaymakers are increasingly looking for safe properties, says Reynolds, noting a rising demand for homes in gated estates and apartments in secure complexes. “Holiday home purchasers generally require low-maintenance, secure living, and tend to prefer properties within complexes or estates that offer a lock-up-and-go lifestyle,” she says. You are more likely to find a willing buyer for a property in a gated estate. ■
4 Rental potential
Unless you are planning an early retirement, odds are you won’t use your holiday home as often as you’d like. Renting out your property to other holidaymakers when you are back in the real world is a great way to get the property to pay for itself. Schenk warns that not all complexes allow holiday letting, so before buying a property, ensure that this option is in fact allowed. Letting your holiday home will also affect the type of property you should invest in.
“You are better off buying smaller apartments if yield is your primary objective, plus you’ll have the added bonus of capital growth,” says Moraitis.
If you prefer a more active role in letting your slice of heaven, the Airbnb database will put you in touch with travellers from around the globe.
The service handles the booking side of things, allows you to screen potential guests and engage with them before they arrive, handles deposits and offers insurance should the screening process fail you. ■
5 Take care of the legalities
“As holiday homes are often handed down from generation to generation, it may be wise to vest the property in a trust,” advises Schenk. He advises approaching an expert for the best solution to your circumstances.
Just because it’s a holiday home, doesn’t mean you can take a tax break, says Schenk. “While the yields on partially let holiday homes can be high, bear in mind that income derived less costs incurred is taxable in most cases. This needs to be factored into the equation.”
If death and taxes are the only two certainties in life, best be prepared for both. To that end, Schenk advises you have suitable and adequate public liability in place. “A fall by a tenant on a loose floorboard could prove an expensive event for the owner. Discuss suitable cover with your insurer beforehand,” he says. ■
R7.25m, St Francis Canals
Property on the V&A Waterfront in Cape Town, priced at R28m through Pam Golding Properties.