Don’t let your prime real estate abroad stand idle while you slave away at work
WITH global growth likely to be sluggish in the coming years, it might seem like a poor time to invest in a holiday home. But with a clear strategy for renting out the place when you’re not in residence, it is easily possible to make back the cost of maintenance and to generate a little extra on the side.
WHAT TO BUY
In most cases, what appeals to holiday rental tenants will be the same factors that appeal to you as a buyer: the quality of the property and the local attractions. But there are also some additional aspects to consider. While you might be happy to purchase somewhere a little cheaper and bring a car down for your holiday, this could prove more of a problem for a shorter-term tenant. Stuart Baldock of international buyer agent Property Vision says “You want to buy as close as possible to a beach and a town or village.” While this is not a hard and fast rule – exploring certain areas like Provence or Napa Valley is always going to require some form of private transport – it highlights the need to consider the needs of temporary occupants as well as your own.
Most important, however, is to put the effort into shopping around. It is always best to buy in an area with which you are familiar, but this is particularly true if you intend to generate income off the property. Consider your niche appeal: as a Brit abroad, you can appeal specifically to other Brits and Anglophones. In some areas, for example, there is a cultural difference in the holiday home market: in France, many native holidaymakers expect a vacation rental to include only basic facilities, whereas English tenants generally want a more luxurious experience. In other words, you are best sticking to what you know.
It is also vital to be realistic. Rental income is unlikely to pay for the whole property, but it will help to defray maintenance costs and perhaps make back a little on the purchase price. The rent-return ratio varies depending on the area, but a €900,000 villa in Mykonos, Greece, can be rented out for €5,000 per week in the high season while a well-furnished apartment in Provence can fetch up to €1,680 per week. In more exotic locales, a £1.2m villa on the popular beach island of Lamu off the coast of Kenya can generate an average of around £840 per night, which, when let for 90 days a year minus an agency fee, makes maintaining the place revenue neutral.
DO IT YOURSELF
The most cost-efficient way of renting out the property is of course to do it yourself. Although this can be time consuming, it gives you the chance to build relationships with tenants directly, which makes it easier to cultivate return business. Baldock says: “If you have the time, make your own simple website – perhaps share it with any friends you have who also have property to rent. If not, use one of the specialist websites that allow owners to advertise directly.” Recommended sites include www.ownersdirect.co.uk and www.property-abroad.com/overseas-rentals.
Even if you can find the tenants yourself, however, the chances are you will still need someone to look in on the property and to clean the place between rentals. The best option is to pay someone local to do it, whether that is a friend or a housekeeper. If that is not feasible, many estate agents will take on the responsibility for fees of around 20-30 per cent of the rent. This eats into your margins, but at least you can be sure the property is being looked after. Roi Delimou of Beauchamp Estates says: “The house must be in perfect condition. When owners don’t maintain it, this can make rentals a little bit difficult.” Beauchamp offers a rate of 20 per cent for renting out the property, with a €1,000 fee to inspect the place initially and thereafter just €300 per year to check in on it and arrange for any necessary maintenance.
LOW-HASSLE RENTALS
An alternative is to buy a property in a managed estate or resort. Hamptons International’s Dean Foley says: “For the most part, foreigners – mainly Brits – looking to buy overseas want a lifestyle aspect to their property and the resort markets have become incredibly popular over the last 10 to 15 years.” One resort in the Algarve managed by the Starwood hotel chain, for example, offers buyers a 10-year agreement whereby you can stay in the property 12 weeks a year. During the others it is added to the hotel’s inventory for bookings with 50 per cent of the income generated going on service fees and 50 per cent going to your pocket. While this is not great value compared to using an agency, it is extremely low-hassle and you can enjoy the benefits of hotel facilities – use of the golf course, cleaning services and so on – in the comfort of a private home (www.hamptons-international.com).
A similar arrangement is available in Madeira on the Palheiro Estate, where buyers can choose from a range of apartments and villas between €400,000 and €900,000 and have the estate’s property service rent them out and arrange for all necessary cleaning and maintenance for a 30 per cent weekly fee.
Whichever option appeals, with so many low-hassle ways to manage rental tenants, there is no reason to leave your overseas property standing idle.
HOLIDAY RENTALS | HOW TO GENERATE INCOME
DOS
Be aware that if you use the property throughout the high season, your rental income potential will be significantly reduced. If possible, stay there during the low season and let it out for the most popular periods to be sure of maximum occupancy.
Provide everything you would want to make use of the property. Property Vision’s Stuart Baldock says: “Aim for repeat business, so price the place competitively and give a lot of perks like decent towels, beach towels, all bed linen and a daily maid (who can also ensure no damage is being done). Stock the bathrooms like a decent hotel does with shampoo, soap and lotions.” This might seem like a minor point, but it can make the difference to tenants’ experience. A well-treated client might well come back and return business means less hassle for you and more trustworthy tenants.
Include extras like lists of local attractions, restaurants and cycle-routes.
DON’TS
Don’t be persuaded that you need to invest a lot of money in advertising your property if you are arranging the rentals yourself. Constructing a simple website, listing your property on free sites and, if necessary, investing in a moderate amount of advertising should drum up business without the need for a huge marketing budget.
Cut corners: failing to maintain the place only leads to dissatisfied tenants and higher costs in the long-run.
Rent out the place abroad without having a reliable local contact who can look in on the property and arrange cleaning services between rentals. This is particularly true if you are arranging tenants online without meeting them.
Simply accept the first agency or management fees you find. The aim might be to avoid a lot of hassle but shopping around, even a little, can pay dividends when fees vary as much as 10 per cent.