Real Estate Investor Magazine South Africa February 2014 | Page 52

GETTING STARTED

BY JAMES COLBY

Buying A Holiday Home?
Ask the right questions first

A

drian Goslett, CEO of RE/MA X
properties, advises that being a full-time
landlord may not be for everyone, but
says there are other options for buyers who would
like to invest in a second property. “Based on the
fundamental economic principle of supply and
demand, a well-chosen holiday home for example,
is a great way to own property and make money
by renting it out to holiday makers during peak
seasons. Many holiday homes offer excellent
potential income during holiday seasons. This way
investors have the opportunity to reap the benefit of
owning an immovable asset that helps pay for itself.”
Andrea Atkinson, ooba’s Eastern Cape sales
manager, says buying a holiday home is a big
expense and commitment, and the kinds of things
you should consider are different to your first
home. “You need to make sure that you know as
much about the property and the local market as
possible before taking such a big step.” She suggests
asking yourself or your estate agent the following
questions.

Why are you buying the property?
It’s important to understand exactly what you
are buying the property for, as this will affect the
decisions you make.
If you’re looking at it as an investment, you
need to be sure that you’ll be able to rent it out
and that there is good price growth in the area.
If you’re buying it as a family holiday home, be
sure that it has the right amenities, and that
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February 2014 SA Real Estate Investor

your children are likely to keep holidaying with
you for the foreseeable future.
And if you’re looking for a retirement home,
make sure that it is the right sort of property
for a person or people of advanced years.
At k i nson say s i f you a re buy i ng for
investment purposes, it’s important to separate
your own personal tastes from those that will
make the property attractive to renters or
future buyers.
She recommends a clear notion of what you
plan to do with it once you’ve bought it, so that
you look for the right sort of property.

Can you afford it?
Your affordability for a second property is
calculated in much the same way as it is for
your first, but the banks are likely to be more
stringent. They will almost certainly require
a significant deposit and will scrutinise your
income and expenses closely to be sure that
you can afford the monthly bond repayments.
“Most banks are a lso unlikely to take
potential rental income into account when
considering your bond application, because
they need to be confident that you can afford
the property, whether or not it is rented out.”
You can use online calculators to work out
your budget for buying a second home.
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What are the additional costs?
Holiday homes are of course located far away from
where you live. This being the case, it is likely that
you will have to appoint a letting agent to manage
the property on your behalf. You will need to
consider the costs of refurbishment, maintenance,
rates, taxes, electricity and water, as well as any
levies if the property is an apartment or part of a
development. You will also need to research the
costs of insurance and security. Another important
consideration is furniture. Some holiday homes
are sold furnished, and you should assess the
condition of the equipment and furnishings so
that you know exactly what you’ll need to replace
and how soon. If the furniture is being itemised
and sold separately, banks do not provide bonds on
this, so you will have to pay cash for this. And you
should also bear in mind the transfer duties and
legal fees and include this in your overall return on
investment estimate. Atkinson says with holiday
homes, there are many different expenses that eat
into your budget, so do your research carefully and
adjust your budget accordingly.

What are the tax implications of a
second property?
Remember that income from property rental is
taxable, so if you are planning on renting your
holiday home out, you will have to declare it as
part of your earnings. Remember also that when
you sell, because it is a second property, your
holiday home will be subject to Capital Gains Tax.
This can be complicated to understand because it
takes into account potential future price growth.
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