Why I Should Never Have Bought a Holiday Home

Why you should pay off your investment loans first

Owning your own holiday home seems like the perfect investment idea: you get to enjoy your dream holiday house in the ideal location, but other people pay it off when you’re not staying there!

It might seem like the best way to have your cake and eat it too, but there’s much more to owning a holiday home than meets the eye, which means they’re rarely as good an idea as they seem at first glance. Here’s a few reasons why owning a holiday home might not be the best idea:

1. Managing the property

As much as we would like it to be true, we can’t just wave a wand and leave our holiday home to run itself when we aren’t there. Whether it’s you or someone else, there ultimately has to be a person responsible for maintaining the property, keeping it clean and managing bookings. If you don’t want to do it yourself, you could see yourself losing as much as 12.5 per cent to your managing agent’s commission.

2. Making tough choices

Obviously, the most profitable times for any holiday home are the exact times you would want to be spending there: Christmas, Easter and school holidays. That leaves you with the difficult choice of making the most money you can from the property and getting maximum enjoyment out of it. That’s not an easy decision to make when you’ve got an extra mortgage hanging over your head.

3. Weathering the storms

Holiday homes aren’t going to be the most consistent source of income. They might make plenty of money when people want to go on holiday, but other times they could be left empty, while still costing you money. That’s on top of longer-term trends where a particular destination might be a crowd-pleaser one year, only to be deserted not too many years later. There’s no way of predicting those movements, but you could be stuck with the short end of the stick at the end of it.

4. Ongoing costs

Given the high turnover of residents in holiday homes, there are plenty of costs that are going to be much higher than a usual investment property. Think of all the cleaning after each tenant, on top of those items you’ll need to replace. The cost of new furniture, plates, glasses and cutlery can quickly add up.

5. Illiquid asset

Property is already an illiquid asset, but that holds especially true for holiday homes. At the exact time when you would probably want to sell the property – when few people are staying in it – nobody is going to want to buy it. You could end up with a property that’s losing you money, but that you can’t offload, no matter how hard you try.

6. Limited holiday options

Now that you’ve gone to all the effort of investing in your very own holiday home, and trying your best to make it profitable, it probably doesn’t make much sense to go on holiday somewhere else. That means the allure of travelling to a new location and discovering all of its wonders has suddenly disappeared as you visit the same town year after year. For some, that might not be as much of an issue, but for others, it could be the worst thing imaginable.

7. Your heart could get in the way

Even if you manage to find a way to make your holiday home venture profitable, it probably won’t last forever. And when the time comes to make the difficult decision of whether to sell it and move on before you lose everything you’ve earned, your own personal connection to the property could make it hard to let go, even if you know it’s the right decision.

I know what it’s like to have the dream of owning my own holiday home, see that dream become a reality and then try to claw my way out of it before I ended up way too deep. That’s not to say that holiday homes are never a good idea, they certainly can be. But for that to happen, you have to be very careful and treat it as a business first, and a holiday home second.

Looking back on it now, I can see that I would have been far better off investing my money in a property in a major city that can be leased much more consistently at a lower overall cost and with much less hassle.

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