How to finance a holiday home (part 2)?

[Trabi601]

bmwmike said:

Trabi601 said:

£100k buys a lot of holidays in much nicer places, and you can get to go somewhere different every year.

Not quite the same though is it.. blowing 100k on holidays or spending 100k on an asset which can later be sold.

Probably closer to £150k with interest, if it stays this low long-term, which may or may not be cancelled out by appreciation. That's before you've paid all the running costs, too.

[Jag_NE]

Trabi601 said:

Probably closer to £150k with interest, if it stays this low long-term, which may or may not be cancelled out by appreciation. That's before you've paid all the running costs, too.

150k plus running costs PLUS the flights to get there each time.

Just taking the 150k into account, instead you could have two very decent, high season European self catering holidays per year (assume 2.5k each) FOR THIRTY YEARS, even more so if you factor in that for the holiday home would need a set of flight tickets each time you use it. Peak season aren't for nothing even on budget airlines.

I agree with the earlier post in that buying holidays is not the same as acquiring an asset, but if acquiring the asset means you will be obligated to go there, every year, until its paid for, I wouldn't do it, it would be miserable. If you are wealthy, I doubt you would be satisfied with spending your hard earned free time in a poky 100k flat.

[Dr Murdoch]

Jag_NE said:

150k plus running costs PLUS the flights to get there each time.

Just taking the 150k into account, instead you could have two very decent, high season European self catering holidays per year (assume 2.5k each) FOR THIRTY YEARS, even more so if you factor in that for the holiday home would need a set of flight tickets each time you use it. Peak season aren't for nothing even on budget airlines.

I agree with the earlier post in that buying holidays is not the same as acquiring an asset, but if acquiring the asset means you will be obligated to go there, every year, until its paid for, I wouldn't do it, it would be miserable. If you are wealthy, I doubt you would be satisfied with spending your hard earned free time in a poky 100k flat.

Thanks chaps, all comments noted.

What I should of added, this will not be used ONCE a year, it will be used several weekends a year, I would wager about 10-15 weekends, summer and winter. It will no doubt be used for a couple of full weeks as well.

It only takes me 2hrs door to door (i'm an hour from Southampton / Portsmouth) , so this is not a replacement for a summer break, rather create an opportunity to 'get away' whenever the mood takes us.

[jonny996]

in a average rolling 12 months we occupy ours approx. 70 nights, so for my man maths that means 20% of my time is spent there & therefore if it costs less than 20% of my total property assets then it is a bargain.
In real terms it is an extravagance that I don't need but then again so is all our cars, I am sure a £1k supermini would actually do everything I need but I chose to drive around in a £30K depreciating asset.

[Ali2202]

We bought on Lake Como 9 years ago and the impact has been varied.

Good Points -
1/ It's frickin' Lake Como! Beautiful!
2/ It's brilliantly situated to explore a lot of the warmer parts of Europe from. It's also only 60-90 minutes from all 3 Milan Airports.
3/ It's a lot drier than the UK! (maybe not over the last 2 weeks though)
4/ Holiday-rental income over 3-4 months of the Summer mostly covers the mortgage and costs. We tend to not rent it during early Spring or Oct thru to early April.
5/ Recent exploration into potential sale-value suggests a 20-30% increase on the purchase-price.
6/ As a bolt-hole/base in the Autumn/Winter it's fantastic.

Bad Points -
1/ The Italians invariably try to overcharge on everything and need challenged regularly.
2/ Upkeep. Accepted part of owning/renting. Still a faff at times.
3/ Initially, we felt obligated to using it whenever we had time off. Got a bit 'samey'. Now we go long-haul every 2nd year for 10 days and tour FROM Como on a regular basis. Nice place to come home to!

Would I do it again? Yes. Would I choose the same place? Absolutely!

Long time dead and all that....

[Whistle]

We had almost cleared the mortgage on our house so decided to remortgage and buy a 2nd home in the Lake District, this was almost 5 years ago.

We rent it out to friends and family and use it at least 2 weekends a month.

Last year the rentals just about covered all of our costs, we now owe next to nothing on the mortgage although the general running costs are about £3.5k per year.

The best bit is we can be there on a Friday night in about 1 hour.

I love it, probably one of the best things I have done and it's increased in value by about £30K in the time we have had it.

[Ozzie Osmond]

I have to agree that a second home "just up the road" can make a lot of sense. Frequency of use tends to much higher as a result of the convenience factor - compared with paying for tickets, faffing about in an airport etc etc.

[DonkeyApple]

Dr Murdoch said:

Thanks chaps, all comments noted.

What I should of added, this will not be used ONCE a year, it will be used several weekends a year, I would wager about 10-15 weekends, summer and winter. It will no doubt be used for a couple of full weeks as well.

It only takes me 2hrs door to door (i'm an hour from Southampton / Portsmouth) , so this is not a replacement for a summer break, rather create an opportunity to 'get away' whenever the mood takes us.

This is very common among the 'second home' market. However, if you jot down all the monthly costs of a second property and the risk of the funding then look at the frequency you intend to be using it it will always work out cheaper to take a suite at a luxury hotel each time instead.

You also need to look at the capital uplift. On a holiday home, assuming 5-10% capital growth each year, you need to buy a property of sufficient size/value for that uplift to exceed your annual running costs.

So, what the market then looks into is obtaining a yield from renting the property out via a holiday let. You then discover that for it to be worth an agents time they want the asset during the prime rental periods. Ie when you were thinking of using it. So you will then end up looking at DIY such as airb&b. That will result in you needing to pay cleaners between guests which in a small property will wipe out most of your income and also result in you having to spend more of your visits fixing everything that is damaged and buying replacements for everything stolen or broken.

So, in short, unless you can happily just throw lots of money at your modest holiday home then you either need to go much bigger, run it purely as a commercial enterprise or opt for the cost effective holiday home which is a caravan.

[Ozzie Osmond]

DonkeyApple said:

if you jot down all the monthly costs of a second property and the risk of the funding then look at the frequency you intend to be using it it will always work out cheaper to take a suite at a luxury hotel each time instead.

I agree. Otherwise you have to be willing to put a high personal value on a place that's always available and has your own stuff in the cupboards. IMO a holiday home for a couple of visits a year is a complete waste of time and the longer it takes to get there the less likely it is to be used. Don't get fooled by, "it's only an hour from Gatwick" - that's still a day's travel in my book.

There are big advantages to owning one decent house as your UK main residence, free from Capital Gains Tax, and paying for holidays wherever you like whenever you like. If an average house is worth £250k and appreciates 5% p.a. that's £12,500. If it's a second home you've got £4,000 of tax to pay. If it's your main residence you've got £4,000 to spend on a holiday! [No, don't pick holes in the figures/cash flow - grasp the principle.]

[Guvernator]

PH can be a very negative place sometimes and I really have no idea why. Yes you can think of a hundred reasons why you shouldn't have a second home but there are just as many reasons why you should, otherwise thousands of people wouldn't do it.

Everyone's circumstances are different, just because it doesn't make sense to you, doesn't mean it can't work for anybody. I have some very close friends who bought a holiday home 2 years ago and they think it's the best thing they have ever bought. Add to that their property has appreciated by 20% and they are over the moon, not that they are thinking of selling any time soon as they enjoy it far too much. If you can do it without getting yourself into financial difficulty, who cares about the rest. At the end of the day it makes far more sense to me then lots of other crap that people blow money on for no good reason.

[anonymous-user]

OP, ignore these miserable sods, I made a similar post and didn't get a very helpful response. Donkey is right to point out the hard facts but if you're like me, you just like the sound of a second holiday home; somewhere to spend time with your family. We made a call last week and have an agreement in principle to borrow enough for something pretty decent. So now we begin the search and I'm rather looking forward to it. You've got a lot of equity so of you can afford to, invest it in and follow your dream.

[silobass]

There's something very appealing about just packing a bag and heading off to a second home. No need to book, no looking around at different places, just get in the car and go.

I'd love a second home one day. Not sure where or when, but I'd love to get towards the end of the week and just decide that I'm going away for the weekend because I can.

[anonymous-user]

silobass said:

There's something very appealing about just packing a bag and heading off to a second home. No need to book, no looking around at different places, just get in the car and go.

I'd love a second home one day. Not sure where or when, but I'd love to get towards the end of the week and just decide that I'm going away for the weekend because I can.

Indeed. You can also choose the dates you want to go, arriving or departing mid-week if you want. Most holiday rentals only allow Sat to Sat which is a pain if you want flexibility.

[Trabi601]

silobass said:

There's something very appealing about just packing a bag and heading off to a second home. No need to book, no looking around at different places, just get in the car and go.

I'd love a second home one day. Not sure where or when, but I'd love to get towards the end of the week and just decide that I'm going away for the weekend because I can.

That's what Laterooms and Booking.com are for!

[jonny996]

wormus said:

Indeed. You can also choose the dates you want to go, arriving or departing mid-week if you want. Most holiday rentals only allow Sat to Sat which is a pain if you want flexibility.

This has saved me over £5k in flights alone for winter 2017 & I am sure there will be more

[DonkeyApple]

Trabi601 said:

silobass said:

There's something very appealing about just packing a bag and heading off to a second home. No need to book, no looking around at different places, just get in the car and go.

I'd love a second home one day. Not sure where or when, but I'd love to get towards the end of the week and just decide that I'm going away for the weekend because I can.

That's what Laterooms and Booking.com are for!

Not really. Hotels do a similar job but not all that comparable.

The upsides of a second property are that you don't really need to pack anything, you don't have to wait until 3pm+ for your room to be ready, it's more than one room or suite and you don't have to vacate your rooms at any point for cleaners etc.

I tend to pick my children up from school on Friday and run straight out to the house. In winter I'll just light a fire then we'll all go to the village pub for supper where I will later be left for the lock in. In summer the children are released into the fields while I fire up the BBQ and tuck into the beer supplies. The children now have their own friends in the village so they go off doing things during the day etc.

Now, I sold out house last year and have not yet been able to source the replacement (no supply) so we've been doing the hotel thing and it doesn't work. It's a system that works fine for mini breaks or main holidays but in terms of trying to replicate a second home they just don't work. So the solution has been to rent until the right family sized home becomes available.

That raises another interesting aspect, below a certain size of property as the value uplift can't surpass the funding and running costs then renting is normally much cheaper if you are not going to sub rent the property for income but only use it yourselves.