What to know before buying a second home
In South Africa, only around 3% of properties purchased are holiday homes. Having a second property has always been seen as an indicator of wealth and privilege. However, this has slowly been changing. With the increase of more affordable developments in popular holiday destinations and the growth of the middle class, vacation houses are becoming more widely accessible. We look at what you know when buying your own holiday home, especially if it is for investment purposes.
Do your research
Research is one of the most vital aspects of buying an investment property. Especially if you are buying in an area that you don’t live in and don’t know very well. First decide where you want your holiday home to be. This is a matter of personal preference if you plan to use the house yourself, and market research, for investment purposes. Think about where you would want to go, as there is no point in having a holiday house that you can’t enjoy yourself.
Speak to multiple estate agents to get a feel for what’s on offer. Look at properties online and see what the average house prices are in the area. Look at appreciation rates. Will your investment bring you a profit down the line? If you plan to rent out your property look at average rental income. Once you have a property in mind, look into what similar houses sell for and how long they stay on the market. Also, consider whether similar houses get rental business. You can never be too sure when purchasing a second property.
Assess your assets
The first question you need to ask yourself is, “can I afford the bond repayments on a second house?” Banks tend to be much stricter when you are you’re applying for a loan for a second property than they were on the first. They probably won’t take potential rental income into consideration right from the start. Banks ultimately want to know if you can afford your monthly repayments, rental income or not. They will scrutinise your finances a lot more intensely to work out if you can afford your monthly repayments. You will also more than likely be asked to put down a large deposit. You have to make sure you are financially fit, secure and ready to take on this responsibility.
You also need to take into account the extra costs involved in owning a second home. If you plan to rent it out you will need a letting agent, they will handle collecting rent and any issues your tenant may have. You may have to renovate the house to make it appealing to renters or other potential buyers. No one wants a holiday home with a broken down lounge and no sink. Obviously you need to take taxes into account. As this is your second home it will be subject to Capital Gains Tax. You may also want to employ a full time caretaker to watch over the house while it is unoccupied. This is a good idea for safety purposes but it is also one more item that gets added to your monthly budget.
What will you do with the house?
There is no reason to own a holiday home if you are just going to let it stand empty while you wait for its value to appreciate. Holiday homes can bring a lot of joy, especially to families with kids. Make plans to use the house as much as possible to get the full worth of it. Make sure it is a suitable distance from where you live so that it is easy to visit. Perhaps you can rent out the house during tourist season and then visit the home yourself during the offseason. If you plan to rent out, or Airbnb the house you need to make sure that it is up to the standards holidaymakers expect.
You will have to deal with cleaners, and gardeners to make sure the house is always in peak condition for guests. If the house was only for your use you could decorate it how you want but if you plan to open it up to guests, you need to make sure it is tasteful and appropriate. Think about what kind of visitors you want to attract. Are you going to provide facilities for kids? Is it a home geared towards young adults wanting a get-away from work? Is the area the kind of place that attracts extreme sports enthusiasts and hikers? You need to tailor the house to the market you want and remember that each market comes with its own challenges.
Now you know what you need to do, it’s time to get out there and join the 3%. A holiday home can be a great investment, not just financially but in terms of memories and time spent with family and friends. Remember if you do your research you should be able to find the perfect second property to meet your needs.
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