There’s no doubt about the fact that a holiday cottage is a great investment, but only if your reasons for trying to get into this investment are the right ones. What are the right reasons though? Here’s a quick checklist to give you a good idea and if most (ideally all) of these items on the checklist do indeed check-out, then your focus will naturally turn towards exactly how to fund that investment:
- Can you get into the investment without spending more than 25% of your net worth?
- Is this an investment out of a need you identified, like the fact that when you go on a vacation and visit places such as North Wales do you yourself stay in a holiday cottage?
- Do you have a solid plan for the property’s upkeep and maintenance?
- Will you personally be able to visit the property regularly and check up on it if not eventually planning to live in it for a significant amount of time?
- Do you have an exit strategy should the property’s development not work out the way you’d ideally like it to?
If you answered “no” to any one of the questions above, it would perhaps depend on which one of them you didn’t check out on (i.e. the one about whether or not you’ll personally be occupying the property), in which case you’re still good to go. Otherwise, all other questions should check out for you to be able to confidently say that a holiday cottage will be a good investment.
Now, onto the funding…
If you have the kind of money which has you considering an investment in a holiday cottage, chances are you’re already occupied with a full-time income channel that takes up a lot of your time, so you’re likely not looking to relocate, but rather have the holiday cottage as a second property which you either visit on your annual vacation or one which you’ll be renting out.
Ideally you want to be renting the property out so that it can essentially pay for its own financing, but either way, a mortgage will probably be the best way to fund the property. This applies even in the case that you may have a stockpile of cash with which you could perhaps buy the property outright, quite simply because this way you’ll have some cash on hand to draw on whenever you need it for operational expenses which will inevitably pop up.
It is also advised to rent the property out only on a short-term basis, perhaps renting out each room to tourists who roll into town and need accommodation, that way any monthly surplus earnings can go towards paying a little bit extra on your mortgage so that your overall interest rate will be slashed quite considerably in addition to you paying off that mortgage a lot earlier than the typical period of between 15-20 years, and even up to 30 years for those property buyers who take more of a domestic form than those looking to have their property generating cash flow.