Buying a holiday home
Okay, let’s start the new year with a look at a situation which I think is unsustainable, and then I will make a suggestion. I’m talking about buying a holiday home, or buying a retirement home.
Have you been thinking about buying a holiday home in the warm south? Have you thought about buying a retirement home in southern Italy, or Spain, or the Algarve? Well, I’ve got a few things to say that I think you should take on board before you make that final decision.
Apartments in southern Spain are at last coming down to reasonable levels. You can now buy a two bed two bath apartment close to the sea, new build, for around €75,000. For a basic well built apartment in a pleasant area that is a reasonable current price. If you want to be on the coast itself, maybe a similar build will cost a bit more. If it’s a flashy joint then expect to pay more again, but for a basic well constructed all mod cons average holiday home that price is about right. Dont pay more.
If you cant find retirement homes or holiday homes at that price just drop me a line and I’ll point you in the right direction.
So, you have been looking at apartments costing €135,000 or even more. You think my prices are nuts, and that I’ve finally flipped. Well, look at it this way. First, those are the prices that are now available. If other prices are higher then you know what that means. It means those prices will have to fall, and they will. And I’m not guessing.
Second, how much would it cost to rent a similar apartment? You will find rentals available for anything from €400 a month upwards. If you haggle you can probably do a long term deal at €350 a month without too much trouble. Dont check out the rental sites, check out the local newspapers.
Now ask yourself what your apartment is costing you if you buy it. Say you buy your holiday home on a mortgage. What will the money cost? At current prices about 4%. If you buy something for, say, €100,000 the money will cost you €4,000 a year. If the mortgage is over 20 years that will be a total price to pay of €9,000 p.a. If, on the other hand, you have cash, that €100,000 can be invested to bring you in a darn site more than 10% p.a., but let’s say 10% at the moment. You could get 15% on managed US rentals, 12% on UK rentals, 14% on UK government backed solar panel investments, 15% on green oil investments, and so on. All solid investments, but we’ll stick with 10%. You’d earn €10,000 a year. Similar to the cost of the property so the price isn’t that far out of line. But…..
Let’s have a quick look at that caveat. How much for the maintenance, rates, repairs, gas and electric bills, and all the etc on that holiday home? That would lift the annual cost of your nice new apartment from €9,000 to at least €12,000, and maybe even more.
Now let’s have a look at another option. I spent Christmas in a four star hotel. I had a large room, with a large balcony overlooking a lagoon and the sea. I had half board, the use of a vast outdoor pool, and a heated indoor pool, a gym, and daily entertainment from table tennis, to shooting, to petanque on the beach, and golf, and so on. No electric bills, no maintenance, no cooking, no shopping or washing up, and someone even makes my bed. I reckon I save about €6,000 a year on food and service charges for one. Why not add that figure to the €12,000 from the previous paragraph. Now ask me what I paid for my room for two people.
It worked out at €55 a day. If I stayed for more than four weeks I would get a discount. 55 * 365 = 20,000. Assume a 10% discount for long term residency and that hotel with all its amenities, and worries removed from my day to day living, costs exactly the same as that €100.000 apartment. Quite frankly you can keep it.
I reckon we are going to see some changes in tourist land. And I think my investments will go up in value a darn site more than a holiday home will.