Many of us dream of one day owning a home in the sun. Lazy days lounging by the pool and watching the world go by are very appealing. If one day this dream looks like becoming a reality you may well get caught up in all the excitement and start seeing things through ‘rose coloured glasses’.
To bring you back down to earth I have compiled my 10 reasons why you should think twice about that dream home in the sun.
1 – Property is not a liquid investment
A liquid investment is one that can be turned into cash quickly, if required. Clearly a property does not fall into this category as it could take many months, or even years, to sell and turn into cash if you required the funds for another purpose. This could become a major problem if, for instance, illness or unemployment puts a strain on your finances.
2 – Funding an overseas property with a mortgage can be financial suicide
If you need to fund your purchase with a mortgage then effectively you are buying it with someone else’s money and paying for the privilege. Now this may seem a good idea, as you can purchase the property with a small deposit and finance the mortgage by letting it out to holidaymakers. Unfortunately reality may be completely different as the value of your property may go down, as is currently the case in most countries. Even if your property holds its value the holidaymakers may not appear in the numbers required, leaving a large black hole in your finances.
3 – Buying a property abroad is like speculating on a foreign currency
Obviously when buying a property abroad you will have to pay for it in the currency of the chosen country. As you are probably aware foreign currency exchange rates fluctuate daily, and over a period of time these fluctuations can have a massive effect. This could not only reduce the sterling value of your property but also increase your mortgage payments (if you took out a foreign currency mortgage) and all the maintenance bills. It would not be uncommon for a currency to fluctuate by 10% over a two year period leaving you heavily out of pocket. You may be lucky with the exchange rate moving in your favour but that ‘s called gambling, not investing!
4 – Maintaining your property can be a big headache
Even if you bought a new property it will eventually cost you money in keeping it in good order. Ok, you may do some or all of this maintenance on your regular visits but was this really part of your original dream…..laying by the pool watching the world go by. Horror stories abound about local tradesmen engaged to carry out work on overseas properties, from shoddy workmanship to disappearing with your hard earned cash.
5 – An overseas property will cost you money,whether your using it or not
Just like your main home there will be bills to pay for local taxes, utilities and the above mentioned maintenance. Even if the property is empty these bills will still be clocking up with standing charges, monthly taxes and possibly pool maintenance.
6 – Will you actually use it as much as you thought you would?
When you are contemplating an overseas purchase you will always exaggerate how much you will use it. In reality life gets in the way, work and family commitments always crop up just when you are planning to fly off to your place in the sun. I have lost count of the number of people I know who rarely visit the properties they purchased a few years ago when they were wearing those ‘rose coloured glasses’.
7 – Buying a property abroad is not a passport to a free holiday
Spending out on a property abroad is great but you have to get there in the first place before you start enjoying your holiday. So, just like any normal holiday you have to pay for flights, car hire, overnight hotel, car parking etc which can limit your usage if money gets a bit tight.
8 – Will you really want to go on holiday to the same place each year?
Your recent fantastic holidays in Costa Whatever may have left you with wonderful memories but after ten holidays in a row the excitement may start to fade. You will almost feel obliged to holiday in the same place every year as you are having to pay out for it anyway.
9 – Letting your property out to a bunch of strangers can be a big headache
Many people let their overseas properties out to help pay the mortgage, or reduce outgoings, but this can result in many sleepless nights. Firstly people never treat other peoples’ properties like they would treat their own, resulting in heavy maintenance costs and possibly the odd emergency. Secondly,everyone else wants to go on holiday the same time as you do, leaving you with the unwanted weeks that may not suit your plans.
10 – Financially, it probably doesn’t stack up
If you do the sums and work out how much you are going to spend on this property (purchase price and ongoing costs) over a period of years and then work out how much it would cost to rent a similar property for a few weeks every year you may realise that actually buying is not a viable proposition.
Instead you could have a relaxing holiday in a variety of locations without all the stress and costs involved.
p.s. I haven’t even mentioned the legal problems!!