Holiday Investments by:Alan Hawkins
I am often asked by South African holiday home owners and those perhaps seeking to purchase a holiday house or apartment in South Africa, if this is firstly a good investment and secondly if they will be able to at least partially off set the costs by renting this to paying tenants or guests.
Prior to me qualifying this statement, the answer is without doubt, yes to both, there is however a "but". Let me also add that whilst I and the http://www.staysa.co.za team have many successful years of experience in the holiday rental and property business, it is always wise to consult with your personal financial advisor, remember however that they and also any real estate agent have a different motive, to earn an immediate and perhaps on going commission on the sale recommended by them. An estate agent would regard rental issues as secondary to their immediate concerns, just as one must be wary when a financial advisor (weren't they called Insurance Salesmen a few years ago) promoting endowment policies tells you property is a poor investment, or vice versa, you are advised to do your own research or discuss decisions with persons who do not enjoy immediate financial benefit from your decision. One should however go to an advisor with a comprehensive plan and if he disagrees, let him prove it and convince you. My last tip on personal investment in general is to take control of your own investments, read and study the subject, listen to what advisors and experts have to say but above all else, make your own decisions.
Before you purchase a holiday house, or any property for that matter, whether it is for your own holiday accommodation or for holiday rentals, one needs to consider some basic investment fundamentals prior to taking this leap. I will try and give a brief overview, our view on this important first step from a general investment viewpoint and I will cover the decision from a lifestyle viewpoint in my next article.
There are quite a few issues to consider, let's first look at the purchase or ownership itself. It has often been shown by investment experts that over a period of time, usually in excess of five years, property investments prove to be a sound, low risk investment. Obviously one would like to purchase when prices are at the lower end of the cycle, this is always difficult to predict with many a buyer getting it wrong. The longer one holds the property, the less the importance of timing. Right now, let's call this period the 2008/09 recession, there are many low priced opportunities, don't rush, there is still left, in my personal opinion however things are bottoming out and I predict a slow recovery into 2010. In short, provided your personal financial fundamentals are secure, now is a good time to buy.
Property investments in general usually offer a good hedge against inflation at worst and excellent capital growth during times if economic growth. Normal caution applies however, irrespective of some bargains in the market, seek out and researching the area to ensure you purchase in the correct location, a critical issue, and at a fair, market related price. These are two essential considerations. Only then, repeat only then, do you look at your personal and family heeds, a jetty or Marina if you own a boat, distance to a golf club or game reserve if these are your passions.
So, what now, you like the location, see a positive future for the area and believe the home offers good value and also satisfies your personal purchase criteria. Now check the maths, provided you can afford the repayments without negatively affecting your normal lifestyle needs, essential and otherwise, you have a winner. Would I recommend the purchase, yes, make the call and go for it. Finance options are not covered here but the first choice is quite probably a second bond on your primary residence and if this is not sufficient, perhaps a bond on the second residence, your bank manager is a good person to talk to on this subject, as we write, interest rates appear to be softening, do not however count on further reductions and leave yourself a little lee-way.
Regarding rental income, be wary. Do not assume a rental income stream on your holiday home along the coast that might be promised by the estate agent when presenting the property for purchase, commission on the sale remains their primary motive, rental issues are secondary to their immediate concerns. Holiday rental income should be treated as unexpected income. Whilst it is probable that you will earn good rental returns that should cover your annual holding and maintenance costs including rates, this will mean sacrificing some of your own peak time occupation. Holiday home rental demand peaks from mid December to early January each year, if you choose to occupy your own home during this period, it will substantially reduce the potential for additional income. Do not plan for this to be sufficient to pay a mortgage, it is unlikely this will be the case. On the more positive side, if your family is able to make the holiday accommodation available during these peak periods, that the home is situated in an area that suits international visitors, it is quite likely that a home worth say R4,5m at current values could reasonably earn a gross rental income of between R80 and R200 000 per annum, the gap between these being determined by location and standard of the furniture and fittings. Please consult with staff at a professional villa rental company such as http://www.staysa.co.za who will gladly advise on this subject.
In summary, if you are able to afford the purchase of a holiday home along the coast of South Africa, you are firstly very fortunate, and secondly, you have an opportunity to grab right in front of you. South Africa remains the best kept holiday secret in the world, I am personally convinced that over the next tem to twenty years our property values will go up astronomically.
Please look out for my next article which will cover the decision to purchase a holiday home from a lifestyle decision viewpoint. Or contact firstname.lastname@example.org and ask them to e-mail you a personal copy.
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Alan Hawkins - CEO
About the author
Alan Hawkins is the CEO of StaySA.StaySA is a leading South African Accommodationportal.Visit StaySA the next time you looking for a kind of Accommodation in South African