Buying a holiday home ... Economics

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RichardCoeurdeLion
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Buying a holiday home ... Economics

Postby RichardCoeurdeLion » Wed May 13, 2015 5:39 pm

A friend is talking about buying a holiday home to use for say three two week breaks a year. ( he's still working)

He's got about £200k available

He asked if I thought it would be a good investment.

I said it all depends on how the property market changes in the future and no one can predict that.

He could spend the 200k and the property could go up, down or stay still.
He'd have the day to day running costs.
He'd have to find about 20k for the buying legal costs etc.
He might decide to rent it out when he wasn't there

On the other hand he could bank his money and get say 2% = 4k and put this towards rental costs.

If he was lucky and property took off again he'd be quids in, or there could be another crash and he could loose a packet.

If it was me, I'd keep my capital and rent.

Anyone got views on this?

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Re: Buying a holiday home ... Economics

Postby scotty » Wed May 13, 2015 6:34 pm

I'm with your sentiment on this Richard. Even though I own my place outright (no mortgage) and I use it at least eight times a year, with the benefit of hindsight I would now choose to rent. If however he is going to live in it after he buys it then thats a different matter.

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Re: Buying a holiday home ... Economics

Postby gerryh » Wed May 13, 2015 6:35 pm

RichardCoeurdeLion wrote:A friend is talking about buying a holiday home to use for say three two week breaks a year.

If it was me, I'd keep my capital and rent.


Invest the capital and rent where and when it suits you.
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Re: Buying a holiday home ... Economics

Postby Wicksey » Thu May 14, 2015 9:40 am

He'd be better off investing in a UK property (not London obviously where that wouldn't buy you a cupboard!). If he is looking for a property to invest in he could rent that out full time and get a much better return. Or he could just bank the money and have his capital safe and a modest guaranteed income.

I can't see property values rising that much here and with the expensive buying and selling costs he wouldn't make anything much, or possibly make a loss. If he wanted to rent it out here then there is also the job of finding someone to manage it and maintain it, plus the legalities for rental properties.

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Re: Buying a holiday home ... Economics

Postby scotty » Thu May 14, 2015 10:47 am

On the other hand, despite what certain people here believe property prices are rising on the CDS. At the worst time in the recession one could buy an apartment in my complex for €68,000. Last week one sold for €110,000. So the old "Location Location Location" is really important in Spain and if you want the view the you must buy it :lolno: . Logically if you buy at the bottom of the curve the price will rise, these rises & falls are cyclical and if you can wait and are not time sensitive it should come right for you.

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Re: Buying a holiday home ... Economics

Postby RichardCoeurdeLion » Thu May 14, 2015 11:23 am

Thanks for the input.

I'll pass it onto my friend

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Re: Buying a holiday home ... Economics

Postby elusive » Thu May 14, 2015 11:45 am

I agree with scotty. If he wants a holiday home buy an apartment something dirt cheap that "can only increase in price" but if hes intrested in the nice villa and spending all his capital i wouldnt. be better off buying in the uk and renting it out instead.

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Re: Buying a holiday home ... Economics

Postby RichardCoeurdeLion » Thu May 14, 2015 3:45 pm

Something I forgot

Assuming he bought

Eventualy he'll die

Would whoever he left it to have to pay a shed load of tax?

Friend of mine.... Him and his wife owned a house on the CDS. In fact it was two houses one on top of the other, but joined.
Technically they owned one house each.
She died leaving her house to him.
I think he has to pay inheritance tax doesn't he. At the moment it's in abeyance as he's returned to UK for health reasons

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Re: Buying a holiday home ... Economics

Postby anyroads » Thu May 14, 2015 6:29 pm

UK is a far better bet at the moment, and actually will be for the next 20 years !

anyroads

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Re: Buying a holiday home ... Economics

Postby katy » Fri May 22, 2015 12:03 pm

RichardCoeurdeLion wrote:A friend is talking about buying a holiday home to use for say three two week breaks a year. ( he's still working)

He's got about £200k available

He asked if I thought it would be a good investment.

I said it all depends on how the property market changes in the future and no one can predict that.

He could spend the 200k and the property could go up, down or stay still.
He'd have the day to day running costs.
He'd have to find about 20k for the buying legal costs etc.
He might decide to rent it out when he wasn't there

On the other hand he could bank his money and get say 2% = 4k and put this towards rental costs.

If he was lucky and property took off again he'd be quids in, or there could be another crash and he could loose a packet.

If it was me, I'd keep my capital and rent.

Anyone got views on this?


Economically it doesn't work especially if you can only get out for several weeks per year. Look on it as an acquisition like a boat or something that you like to own. I say this having the Tshirt :D when the kids were young I used to spend most school holidays there and we had lots of long weekends. We may have got our money's worth but not sure if everything was costed. When they were older they got fed up of it and so did we. There is a lot of world out there to see. Every time you go out there was usually things to sort out and most houses are high maintenance. Holidays should be about luxury, room
service etc. not traipsing round supers or even worse Leroy Merlin :mrgreen:
Back in the UK there would be calls from Paco such as a pipe needed replacing, or worse. Our Norwegian friends turned up unexpectedly at their second home recently. Their Gardener was having a Sunday get together for his extended family around their pool. Hilarious.

Tell him he could get 4% if he shops around. Or he could buy 3 or 4 slum houses in the UK and rent them out. Even if prices go up in Spain it takes years to break even with huge buying and selling costs.

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Re: Buying a holiday home ... Economics

Postby katy » Fri May 22, 2015 12:09 pm

RichardCoeurdeLion wrote:I think he has to pay inheritance tax doesn't he. At the moment it's in abeyance as he's returned to UK for health reasons


Inheritance tax is never "in abeyance" there are penalties.

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Re: Buying a holiday home ... Economics

Postby RichardCoeurdeLion » Fri May 22, 2015 9:44 pm

Thanks for that, Katie

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Re: Buying a holiday home ... Economics

Postby misswoosie » Fri Jun 12, 2015 1:20 am

Interesting discussion
anyroads wrote:UK is a far better bet at the moment, and actually will be for the next 20 years !

anyroads


Wondering why you say this? In many parts of the UK property prices haven't returned to anywhere near the 2007 property prices, and it could be another 20 years before they do, probably because property was vastly overvalued in the boom. In some areas in the North prices year on year are still falling.

Tell him he could get 4% if he shops around. Or he could buy 3 or 4 slum houses in the UK and rent them out. Even if prices go up in Spain it takes years to break even with huge buying and selling costs.


Can you get 4% on £200k anywhere? I think 3 or 4 "slum houses" as investments would be a nightmare and I'm taking a complete guess in saying that they wouldn't be close to where he lives, thus requiring him to pay an agent management fees and use their pricey repairs team.
Generally Slum house = undesirable area = high vacancy periods= problem tenants = high costs. Not really a good investment to put your money into poor quality housing and IMO the risks of investing in this type of housing could be just as high as buying in Spain and buying 4 properties here might be just as costly with regard to buying costs. And he certainly won't have anywhere to go on holiday!
Depending on time of year etc, if you want a luxury holiday rental or hotel then you're talking about between, what , £1000 and £2000 per week?
Difficult these days to know what to do with savings. At one time the UK housing market was a good bet as prices at least doubled every 10 years. Not the case now and what happens in London can have disastrous effects elsewhere in the country.
Maybe he should spend £120k on a property in Spain and £80k on one in the UK.Or tell him to buy gold :)

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Re: Buying a holiday home ... Economics

Postby katy » Fri Jun 12, 2015 10:26 am

As the long term owner of some terrace houses in the North they are a better investment than many southern areas. Mine are on contract to a HA. No voids, no management fees, any damage rectified. I think areas that aren't doing well in the UK are now very few. Even Birmingham has been listed as a hotspot.

Yes, a luxury hotel will cost, but the rental from the buy to let in the UK will pay for it, or the interest from the 200k.

A holiday home is for enjoyment if you get a return it's a bonus. :D

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Re: Buying a holiday home ... Economics

Postby wollie » Fri Jun 12, 2015 10:48 am

I think the investment would be an ok option but stay away from the tourist hotspots.
There are loads of working towns like Malaga/Seville/cadiz where there would be option to rent to tourists/students/working people.
If I was starting again I think this is the option I would consider.
I am really happy with what I have done and though I know the property I have is worth pretty close to what I spent it would not achieve as it is competing with old houses that are on the market, the whole adventure of it all has being very rewarding for me and I put a value on that.
I would not invest long term in a band as inflation will erode the value so I say go for it.

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Re: Buying a holiday home ... Economics

Postby katy » Fri Jun 12, 2015 10:53 am

I wasn't saying don't do it. Richard was asking about the economics of it...and for 6 weeks use it doesn't stack up.

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Re: Buying a holiday home ... Economics

Postby Mowser » Fri Jun 12, 2015 10:56 am

Even if prices go up in Spain it takes years to break even with huge buying and selling costs.


No selling costs if you sell without using a gestor. No CGT if you are 65.
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Re: Buying a holiday home ... Economics

Postby katy » Fri Jun 12, 2015 11:01 am

CGT Costs if selling a second home. Plus valia when selling and people are very fortunate to sell without an agent.

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Re: Buying a holiday home ... Economics

Postby Mowser » Fri Jun 12, 2015 11:51 am

Correct. If buyer eventually stays here and makes property main home, no CGT after 65.
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Re: Buying a holiday home ... Economics

Postby katy » Fri Jun 12, 2015 2:28 pm

The thing is a holiday home is very tempting. There you are, having a brilliant holiday. Stop to look in an Agents window and they're off :mrgreen: you try to justify it as an investment, you have a great time there but we have some happy memories of great times all over the place.

I say this because we did it too. In fact the last couple of years we have took some short breaks in Nice. Love the old town and the buzz. Property has fallen there too. OH was looking at a brochure and he got the wouldn't it be great bug :lol: he wanted to view one but I refused as I thought it may go out of control :o

Can't say I regret having one but make sure you don't mind leaking money all the time. Work out the true cost of that 6 week holiday.

£200,000 at 4% will earn £8000pa
4 BTL at £50,000 each would earn at least around £15,000


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