Difference between where you live and go to get away
BUYING a holiday home is a big expense and commitment, and the sort of thing one should consider is different to buying a primary home, says Andrea Atkinson, Ooba’s Eastern Cape sales manager.
Buyers need to ensure they know a great deal about the property and the local market before taking this big step.
Why are you buying the property? If you are looking to buy a holiday home as an investment, Atkinson says you should ensure you can let it, and that there is good price growth in the area.
“It is important to separate your personal tastes from those that will make the property attractive to renters or future buyers.”
You should be sure it has the right amenities and that your children are likely to continue holidaying with you for the foreseeable future.
Can you afford it? Atkinson says a buyer’s ability to pay for a second property is calculated in much the same way as it is for the first, but the banks are likely to be more stringent.
“They will require a significant deposit and will scrutinise your income and expenses closely to be sure you can afford the monthly bond repayments… Most banks are unlikely to take potential rental income into account when considering your bond application, because they need to be confident you can afford the property.”
What are the additional costs? As holiday homes are usually located far away from where buyers live, they will probably have to pay letting agents to manage them.
Buyers will also need to consider the costs of refurbishment, maintenance, rates, taxes, electricity and water, as well as any levies. They will need to research costs of insurance and security.
“Another important consideration is furniture. Some holiday homes are sold furnished, and you should assess the condition of the equipment and furnishings so you know exactly what you’ll need to replace and how soon.
“If the furniture is being itemised and sold separately, banks do not provide bonds on this, so you will have to pay cash.”
Buyers also need to remember transfer duties and legal fees and include this in their overall return on investment estimate, Atkinson says.
What are the tax implications of a second property? “Remember that income from property rental is taxable, so if you are planning to let your holiday home, you will have to declare it as part of your earnings.”
And she says when you sell, because this is not your primary residence, your holiday home will be subject to Capital Gains Tax.
This home in a gated estate in Hout Bay was recently bought as a holiday home.