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Financial benefits of owning a holiday home

The holiday home: a place to relax, a holiday destination – and an investment. There’s no point in letting a sparkling and exotic property lay dormant and unused when it could be a cash cow with very little work, especially as it should eventually pay for itself and then provide a tidy regular income for nothing, save the odd maintenance cost, bill and visit. Companies such as Portugal Property will help you assess the viability and benefits of buying a holiday home – here are a few aspects to consider.

Where should I buy?

Even the briefest period of time spent researching will reveal that there are some real bargains to be found. In Massif Central in France, for example, a three-bedroom cottage starts at around £28,000. The flip side of this is that the rent you can charge will be lower, but that may not matter for a smaller investment such as this.

The sooner you buy, the sooner you can start recouping costs, but most families will need to put money aside for several years for a deposit. This could be frustrating if prices are low at the outset – but the strength of the pound against the Euro and the dollar may mean that holding tight might be a more prudent step.

Florida and Spain are the two top destinations of choice for holiday home buyers according to The Mirror’s Money Transfer Service, but in the space of a year a Floridian villa worth almost £230,000 in 2013 could now be worth almost £21,000 less. It’s a similar story in Spain, and unsurprisingly the European property market is experiencing a surge.

It’s tempting, then, to keep saving and move in with a larger deposit for a lower price next year or even later. But the currency market is a temperamental beast…

How much do I spend?

Only you know your budget, and how much rent you propose for the home when it is secured.

Critically analyse the amount of work which needs to be completed at the start for any renovation you might plan; even small costs such as painting window frames and replacing carpets will cost. You can attempt tasks yourself, but unless the home is in the UK and you can visit at weekends the work will need to be figured into holidays, and therefore time is limited.

Economists have coined the term ‘sunk costs’ for an endeavour in which money is invested or spent which cannot be recovered, and the logical action would be to cease spending more. But psychologists will tell you that rationality often goes out of the window in such circumstances and people carry on throwing money at the project – especially when that dream of the white wine on your own Spanish veranda seems just a few more pounds away.

The conclusion: be realistic from the start – you’ll never get any money back if the project remains unfinished.

How long to pay it back

There are many factors that will dictate the length of time to recoup the outlay, not least the popularity of the destination itself and the take-up. You’ll need to gauge a realistic price to entice people, and be fairly relaxed in the thought that there will be peaks and troughs throughout the year. Not many people visit a holiday home in November, for example, while you might be turning people away for July and August.

The Telegraph has compiled a comparison of how quickly one may realistically expect to pay off a home in Portugal, Spain, or France, and again it may seem surprising. Under the right conditions a three-bed villa in Lagos could be owned mortgage-free in just seven years, and a luxury £200,000+ apartment in Alicante could be paid off in five through a rental income of £550-£2,100 per week.

A fairly hefty deposit would be needed of near or above half the asking price, but if a period of saving for several years leads to a splendid holiday home and thousands of pounds a week pouring into your account a few years after that, it might just be worth it.

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