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22 Sep 2014

Investing in a holiday property: The pros and cons

Property investment is just about everybody’s idea of a good investment. It is lucrative in terms of both income from rent and capital appreciation.

What most people do is they look for a bargain in their home country on Gumtree, auction sites and property listing sites. Most look in their home town. However, some open-minded investors also think about the possibility of a holiday home investment somewhere warmer, and where the lifestyle is a bit different.

There are some real advantages in this type of investment if you can afford it. There are also some disadvantages, which you should be mindful of as you begin on your investment journey.

The positives

A home away from home
Whenever you have a holiday investment property you have a home away from home. All of the normal creature comfort comforts that you have back home can be taken away with you and stowed in a property ready for your annual trip. No more looking on

Rental income and capital appreciation
As alluded to in the introduction to this piece a holiday property provides you both the rental income and the appreciation in the value of the property as a return on your investment. With some overseas locations appreciating very fast you could end up with a superb short term and long term investment.

A hassle free investment
If you hire a property management company to look after your foreign property then you don't really need to get involved in the management of your investment. Your receive rent into account every month without having to worry about the property. It may be that you have to get involved with some repairs and fund some minor renovations from time to time, and if something goes wrong, you will have to be involved. These occurrences are normally few and far between though.

Some disadvantages

More financial outlay
Property on foreign soil, just as a property back at home, costs money. You will have to find the mortgage for the property if you haven't bought it outright. There may be ground rent to pay, property taxes, water bills, fuel bills and so much more. This is the commitment that you will have to take on if you want to invest in a foreign property. You will have expenses month in month out whether the property is rented out or not.

You may feel compelled to holiday there
If you have a holiday property you will probably feel compelled to go there every year as your main holiday. Although this can be nice to start with it can get a little boring. You may want to see more of the world, but having invested so much in the property you can’t justify going anywhere else. You have to think seriously about whether this is something that will happen, and whether it is something you want.

Seasonal incomes
In a lot of places where you could buy a holiday property the income is very seasonal. Some parts of the world, have all year round decent weather and so can be “all season” rentals. However, the majority of places are rented out for about 6 to 8 months per year. The peak holiday periods are probably only for a couple of months. In the off-season you are unlikely to get very much at all for your property.

When you're looking at a holiday property you may also be thinking long term. If you want to retire abroad then securing a property and paying a mortgage off on it will mean that you will have a mortgage free property overseas waiting for you when you retire. If you're paying off your mortgage back at home as well then you will have a good cash sum if you sell that. Alternatively, could rent out your home in your home country as an income for retirement, and live in your foreign property.

Whenever you are looking at an investment you need to weigh up the pros and cons. With investing in holiday property there are certainly pros and cons. Your decision whether this type of investment is right for you comes down to your personal situation and preferences.
Category: Medhead tips

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