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The Pros and Cons of Holiday Home Investment

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By - Friday 17 September 2010

Real estate investment may not be everyone's cup of tea but those who have tried their luck know that it can be a lucrative business and can earn you maximum returns. As the summer season comes to an end, you might feel like you want it to prolong the experience. This may prompt you to invest in a holiday home. Before investing money in any real estate, it is important to ask yourself one simple question, "How much house can I afford?" because purchasing beyond your affordability can land you in serious financial trouble.

The Pros:

  • You will always have familiar "home" to go on holiday to:

Not only will you have a place to stay, you can make it a home from home with all your creature comforts.

  • You can achieve a rental income and capital appreciation:

You can rent the property out to holiday makers when you are not using it, with rental income covering the mortgage repayments. In the long term, the value of the property is likely to appreciate, of course this will depend on the property market in the area you have bought at the time you wish to sell.

  • You can have a hands-free investment:

When you do rent it out you can hire a property management company to maintain the property for you. This will come at a cost but it also means you do not have to worry about the property when you are absent.

With the recent housing crisis, you may be forced to contemplate that this is perhaps the right time to invest in a holiday home, but have you considered the pitfalls? Real estate agents have already found many reasons to invest in such a property, but here are some important reasons for avoiding investment in a holiday home.  

The Cons:

  • It's an added expense:

If the holiday home is a second home where you're investing your hard-earned money, then it becomes an added expense. This will demand a day-to-day operating budget where you need to sort out all your household expenses twice over. You have to pay double mortgage tax, fuel bills, water etc. Before you utilize your excess money in investing in a holiday home, consider what else you could have done with that money. Maybe you could have paid off debts, college funds or for improvements in your primary residence. If you don't have enough non-refundable income and your future seems uncertain, think twice before investing in a second property primarily for personal use.

  • It constricts your vacationing to one place:

This is one of the primary reasons why you might avoid investing in a vacation home. The world is a big place and there are lots of destinations for roaming around. Most real estate investors fail to consider this reason before investing in such a property. If you stake your finances in a holiday home, you'll feel obligated to return to that particular place long after the magic has gone.

  • Maintaining a seasonal property may be tough:

You may also face trouble in maintaining a seasonal property. Since this type of real estate is seasonal and is vacant at a particular time, the likelihood of detecting problems decreases. Some disasters such as leaks and burst pipes may well go unnoticed for some time if the property is vacant. That calls for a managing agent to step in and will incur further cost.

Therefore, if you're a real estate investor, it's your responsibility to consider "How much house can I afford?" before taking the big step into the market. You may have come across multiple reasons to invest in a vacation home, but hopefully the points above may help you take a precise and calculated decision.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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