If you’re going away at the end of the year, chances are that you will dream about what it would be like to live in your favourite holiday town full-time – or at least think about the possibility of buying a property there that you could let out most of the time and also use as your vacation home.

“People who are enjoying a perfect getaway often start to think like this,” says Carl Coetzee, CEO of SA’s foremost home loan originator BetterBond, “which is why the  July and December holiday seasons in South Africa’s coastal and country resort areas are generally boom times for local estate agents.

“And buy-to-let investments in holiday homes can indeed be very rewarding. But as with any other property, buyers should avoid making decisions in haste and do some proper research before they commit to relocation or the purchase of a second home.”

For example, he says, holidaymakers keen to relocate should bear in mind that they probably always see their favourite area at its best – when it is full of other happy visitors and when the best weather can be expected.

“Out of season, the area could be wet and windy, for example, or too hot for comfort. It will most likely also offer fewer employment opportunities and much lower prospects of establishing and sustaining a new business. It thus makes sense to delay your decision until you are back in ‘work mode’ – and until you have visited the area at different times of the year to ensure that it really offers the lifestyle you envisage. Prices are also likely to be more negotiable if you buy in the off-season.”

Coetzee says that if your plan is to buy a second home that you can use for your own holidays and then let out on a short-term basis for the rest of the year, you will also need to check the demand for holiday accommodation outside of peak periods – or be prepared to take your own holidays in off-peak times to ensure the best return on your investment.

“In addition, you should be prepared for the fact that it is usually tougher to obtain a bond for a second home than your primary residence, even if it will be bringing in rental income. Most lenders will be looking for you to pay a sizeable deposit on any buy-to-let property and will still probably only offer you a home loan at a higher rate of interest than on your primary property.

“However, you can ensure that you get the best possible financing deal by applying through a reputable originator like BetterBond. Our multi-lender application process ensures that the banks know they are competing for your home loan business. This not only speeds up the response time, but also ensures that lenders immediately make their ‘best offers’ applicable to your financial circumstances.

“You get to choose the best terms and interest rate available, and this can make a significant difference to the affordability and long-term cost of your property – and thus the profitability of your investment.

“On a R1m home loan taken over 20 years, for example, a 0,5% lower interest rate translates into savings of around R4000 a year and almost R80 000 on the cumulative cost of the property.”

(See https://www.betterbond.co.za/calculators/home-loan-repayment to check how much you could save by getting a better interest rate through BetterBond.)

When it comes to finances, he says, prospective buyers of second homes or holiday properties also need to consider transfer costs, ongoing municipal rates and levies and any Capital Gains Tax implications should they later decide to sell.

“If your favourite holiday haunt is at the coast, you will also need to weigh up the advantages and disadvantages of buying a property close to the beach. Beachfront properties will be the most sought-after by other holidaymakers and command the highest rentals, but they also cost more to own.

“The municipal rates on these properties are usually higher and they are also more subject to weathering that can mean much higher maintenance costs than anyone used to living inland might expect.”

If you are planning to buy a holiday home that is exclusively for your own use, you may well be attracted to one of the many security developments that have sprung up around coastal towns and villages to meet the rising demand for lock-up-and-leave ‘weekend’ homes, Coetzee says.

“But here, too, you need to keep a cool head. Buying anything off-plan calls for special efforts to ensure that the completed development will meet your expectations, while even if you are buying a completed home it is important to ensure that it is close to the amenities or activities you want to enjoy in your leisure time – whether that is shopping, night life, or recreational and sporting facilities. You don’t want to spend your holiday commuting.”

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