If you’re going to prosper as a holiday home owner, you must ensure that you buy it on a solid financial basis. By committing to strict and safe financial goals – both in purchase and running costs – holiday home ownership will be a much easier and fruitful experience, and you will be much more comfortable with your investment.
Firstly, you have to establish what the overall aim of the purchase is. The property being purchased could be, for example, a long-term asset as part of a wider retirement plan. On the other hand, it may be a short-term return on investment venture, which is being used as an alternative savings account. Of course, it may be somewhere in between – for medium-term capital growth – while a lot of families simply let what’s theirs to cover the running costs for the most part of the year.
A number of factors will help purchase budgets for holiday homes, and these must be finalised before decisions on how to finance the property. These considerations include:
Most of a decision tends to rely on the ability to get a suitable mortgage on a property; a good mortgage broker can advise on these deals. Ultimately, the biggest immediate hurdle is the size of the deposit that can be put down; mortgages themselves tend to be limited to a certain multiple of a person’s annual wage, combined with subtractions for things like other existing mortgages or financing deals. Remember, though, that many new-build developments have good finance packages available for prospective tenants.
The running costs of a holiday home need to be worked out on a month-to-month basis, as these will ensure the property can turn money over safely – and profitably. These include the price of cleaning and changeovers; utility bills; repair and replacement costs; council tax or business rates; marketing costs; and agency fees.
Typical (and consistent) cash flow
Given that holiday letting tends to be seasonal – restricted to certain times of the year – it is important to understand the transitional nature of holiday bookings, and how they will fluctuate through the calendar year. It is therefore important to budget for bills and mortgage costs over the quieter periods.