Keith Hood asks if a holiday home makes financial sense?

Writtern by Keith Hood.

I’m pleased to report that I’m writing my column this week on a sun lounger in a very sunnyMajorca. But Let me stop gloating for a moment and get to the point.

With the dreadful summer we’ve had and property prices in the Med having plummeted, it’s not surprising that some of my clients are inquiring about buying holiday homes. Laying here on this perfect beach it’s easy to see the attraction – and who wouldn’t want a holiday home abroad. But does it make financial sense?

Let’s look at the purchase of a holiday home first, then let’s consider what might be a more sensible option.

Firstly, wouldn’t it be great to drive to your local airport on a whim and whiz over to your holiday home, all your summer clothes would already be there, hand luggage only needed.

There is also no doubt that prices of property, in particular inSpain, have fallen significantly in the last three years. In fact, some properties, particularly apartments on dense urbanisations are almost impossible to sell at the moment. Bank repossessions dominate this area of the market. Many past purchasers have simply handed in the keys and returned home, which for most is theUK. The ability to let these properties was greatly exaggerated by estate agents and a quick look at the To-Let column in local papers will demonstrate that there are huge quantities of property standing empty.

So this, I suppose you could argue, is a buying opportunity.
Well possibly, but don’t expect a recovery in Spanish property values anytime soon.

Furthermore, the possibility of a decent rental income in the immediate future is remote. A holiday home would also have some running costs whether you use it or not, utilities, community charges etc.

In summary: some outgoings, no income, you still have to pay for flights to get there and are buying something which could hardly be described as a solid investment currently.

But don’t despair. Let’s assume you going to spend around £100,000 on your holiday home. Remember the glut of holiday homes for let? Searching the internet for long-term lets will quickly demonstrate to you that you can take advantage of rock bottom prices and rent a very nice property for around £500 per month provided you commit for about six months. Plenty of time for you and your family to use it. You could even let friends use it for a small charge maybe.

All we need to do now is find you £500 per month. Let’s return to your £100,000. That will buy you a buy-to-let property here in the UKwhich will easily produce £500
per month all year round with a
very decent prospect of capital growth.

Keith Hood is the managing director of Warners Financial Services. Call 01953 607313.

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