Why Invest In A Holiday Home?
If you are wondering whether it is worth investing in a holiday home abroad, our answer is yes. But before taking the plunge, it's essential to consider all aspects to ensure you make a wise decision and not one that will cost you in the long run. While having a vacation home in a beautiful location may sound appealing, many factors should be considered before making a significant investment.
From fluctuating exchange rates to unexpected maintenance costs, weighing up the pros and cons is essential. Given that we have helped hundreds of buyers invest abroad, we know the benefits, disadvantages and tips for a smoother process. So, let’s get started.
Benefits of Investing in a Holiday Home Abroad
1: Diversification of Property Investment Portfolio
Investing in overseas property reduces risk and increases potential returns, because different countries' real estate markets don't always move with other markets, providing a buffer against economic downturns. For instance, if your home country's market stagnates, a booming market in another country could balance your overall investment performance, and ensure you don’t dip into the red.
2: Potential for Higher Returns
Emerging markets often offer higher returns compared to more mature markets. Portugal, Mexico, and Thailand have appreciated significant property value over the past few years. By getting in early in these markets, buyers enjoy substantial capital growth. If capital appreciation is your main aim of investing, do research because market values change year after year.
3: Quality of Life
Expect a higher quality of life than in your home country through better healthcare, living costs, living, and more relaxed lifestyles. For example, Mediterranean countries like Spain and Italy are famous for their leisurely pace of life and excellent healthcare systems. The benefit is that when we experience a good quality of life, our mental health and wellbeing improve.
4: Rental Income Potential
Your overseas property doesn't have to sit empty when you're not there because renting it out generates income. Popular tourist destinations or cities with high demand for short-term rentals are particularly lucrative. Platforms like Airbnb have made it easier than ever to manage short-term rentals, providing seamless ways to monetize your investment.
5: Retirement Planning
Most time, when people buy a holiday home, they also plan to move into it, when they retire. Buyers stretch retirement savings further by purchasing a property in countries with lower living costs. Countries like Portugal also offer attractive retirement options with their Golden Visa program, allowing retirees to live comfortably while enjoying the perks of European residency.
6: Second Citizenship and Residency
Depending on how much money you plan to spend, many countries offer citizenship or residency programs to foreign investors. Spain, Portugal, and Greece offer Golden Visa programs that provide residency permits to property buyers. Turkey also has the most cheapest and quickest processing time for those, who are also looking at citizenship through their property purchase. This significant benefit offers flexibility to live, work, and travel freely within the region.
7: Treasured Holiday Memories
Naturally, the purpose of a holiday home is somewhere to retreat often, to recharge your batteries and spend time with loved ones, friends and family. It is easy to find a holiday destination that you can fall in love with, and given that countries like Spain and Turkey top the list of most popular holiday destinations in the world, they present many seaside coastal towns to buy in.
Practical Considerations of Owning Foreign Property
Legal and Tax Implications: Be sure to understand these aspects thoroughly, because they differ from country to country. This includes property taxes, inheritance laws, and any restrictions on foreign ownership. Proper planning and advice from local experts help navigate these complexities.
Maintenance and Management: This might include maintenance, repairs, and dealing with tenants if renting out. Hiring a reliable local property management company takes the hassle out of this process, ensuring your property remains in excellent condition.
Remember the 90-day rule: This regulation limits how much time foreigners spend in a foreign country within 180 days without obtaining a visa or residency permit. Foreigners who buy homes in Europe can spend up to 90 days within 180 days without any issue, thanks to the Brexit transition period. The same applies to Turkey. However, the rules may change after this period ends, so stay updated.
Staying Longer Than 90 Days: To stay longer in EU countries and Turkey, foreigners must apply for long-stay visas or residency permits. Generally, these visas or permits allow foreigners to stay for a year or more. In France, foreigners sometimes apply for a long-stay visa called "Visa de Long Séjour" to stay for more than 90 days. The process involves an application, providing supporting documents, and interviews at the French consulate or embassy. Obtaining a temporary visa may be possible for non-resident buyers looking to spend more time in the EU for house hunting or investment purposes. Some countries offer temporary visas beyond the usual 90-day limit.
Diversify to Protect Assets: This means spreading our money across different assets, like stocks, bonds, and real estate. Investing in overseas properties helps protect us from economic downturns that might occur in our own country. Suppose housing markets in our country takes a hit. In that case, our overseas properties act as a safety net, keeping our investments intact.
Other Risks of Buying Property Abroad
Unfamiliar laws: For international transactions or dealing with laws from a different country, a lawyer familiar with the specific laws helps greatly. They need to be qualified and experienced to know their stuff inside out.
Poor or Biased Communication: One major challenge is the language barrier. When dealing with individuals from different countries, it's common for miscommunication to occur. That's why having a trusted interpreter is so important to clearly understand the terms and conditions, avoiding misunderstandings that could cost money. Another risk to be cautious of is biased communication. The seller and their estate agent may sugarcoat information or leave out essential details.
Extra Costs: Consider the cost of shipping furniture internationally. Then there are the international bank transfer fees. On top of that, foreign buyers need an international translator when dealing with legal documents or communicating with locals. Legal fees include title searches, contract reviews, and notary fees.
Taxes: Most countries have annual property taxes. This varies significantly from country to country, so it's worth looking into beforehand. Also, check for double-taxation treaties. Lastly, if you rent out your home and generate income, you are subject to income tax on that rental income.
Disputes: Ownership disputes are a headache, so check for legal disputes or claims. Do due diligence and thoroughly research the history. Also, check for outstanding bills, tax demands, and legal connections to electricity, water, and other essential services.
Unexpected Costs: Beyond the price, consider numerous hidden costs. Taxes, insurance, utilities, and homeowners' association fees add up quickly. To rent the home, factor in management fees, cleaning services, and marketing expenses. Travel costs are significant if you visit frequently.
Security Concerns: An empty home attracts thieves and vandals. So invest in security systems, hire a caretaker, or pay for additional insurance coverage. These measures protect investments but also contribute to the overall cost and complexity.
Market Fluctuations: Foreign property prices are unpredictable. Economic changes, political instability, or environmental issues like floods or earthquakes will significantly impact investments. Market downturns affect property values and rental demand, potentially reducing profitability.
Property Purchase Tips for a Successful Experience
Research and Professional Advice: Thorough research is paramount before purchasing. Engage with local experts, lawyers, and tax advisors. Their expertise will help you navigate legal requirements, avoid pitfalls, and make informed decisions for a wise investment.
Maintenance and Security: Consider hiring a reputable property management service for maintenance and repairs. While this adds to costs, it saves significant time and stress. Invest in robust security measures. Security systems, smart home technology, and hiring a local caretaker will provide peace of mind.
Finances: Be realistic about the financial commitment and factor in ongoing costs, including maintenance, insurance, taxes, and travel expenses. Some property owners also market their residential property as rental property. In some cases, it is to recoup the running costs, while in others, to generate a second income. However, check current rental laws before buying. Many countries have changed laws on furnished holiday lets them in the past three years and now require a licence to operate as a business. Additionally, the income must be declared locally, and the tax rate must be paid.
About Paying Capital Gains Tax
If you decide to sell in later years, British expats may have to pay capital gains tax (CGT). Still, the specifics are complex and depend on various factors. Capital Gains is a tax on the selling profit (or 'dispose of') of something (an 'asset') that has increased in value. The first thing to consider is residency status.
The UK has a statutory residence test that determines whether you're a resident for tax purposes. UK residents are liable for CGT on worldwide gains. Meanwhile, non-UK residents only pay on profits from selling UK property or land.
Non-UK residents are sometimes liable for CGT if they return to the UK within five years of leaving. This is known as the "temporary non-residence" rule. If you fall under this rule, you'll pay on any gains made during your time abroad.
Many countries have double taxation agreements (DTAs) with the UK to prevent you from being taxed twice on the same income. If you pay CGT where the property is located, you might be able to offset this against any UK CGT due, but you'll need to declare the gain and the foreign tax paid to HMRC. In Turkey, you won’t pay any capital gains if you have kept the property for at least five years.
In Spain, Buyers will likely pay Spanish CPT on the profit from the sale. (Spain has different rates depending on gain.) If you're a UK resident or the temporary non-residence rule applies, report the gain to HMRC and potentially pay UK CGT. However, foreigners usually claim relief from taxes already paid in Spain.
About Golden Visa Programs Across the World
First things first, look into residency requirements. Each country has different rules, like living there for a certain number of years or investing a specific amount of money in local businesses. Next up, military service. This one does not apply to all countries. Still, some may have compulsory military service as a requirement for acquiring citizenship. Be aware of this before deciding on a country. Argentina, Ireland, Mexico, the Dominican Republic, and Portugal are popular choices. These programs typically involve living there for a certain period, meeting specific investment or financial requirements, or contributing to the local economy.
Be Aware of Exchange Rate Changes
Exchange rates impact house prices and mortgage payments. Imagine this: you find the perfect dream home in a beautiful country, but the exchange rate takes a dive, making the local currency more expensive. One option is to use a forward contract to lock in rates for the future, ensuring that you won't be affected by any changes. Another strategy is to use a market order, which lets you set a target exchange rate and automatically execute the transaction when that rate is reached.
Using an Overseas Mortgage to Buy a Second Home
Yes, British citizens can get foreign property mortgages. Still, the process and availability of mortgages depend on several factors, including where you want to buy the second home. Use a mortgage adviser to understand the legal advice and fully maximise your options.
Foreign Banks: Bank customers sometimes opt to get a mortgage from a local bank in the country where they buy property. These banks are familiar with the local market and legal requirements and offer financial planning services.
International Banks and UK Lenders: Some international banks and overseas lenders offer mortgages specifically for homes abroad. These might include banks with a presence in both the UK and where you are buying. A few British banks and lenders provide mortgages for properties abroad, although this is less common.
Currency Exchange: When buying in a country with a different currency, exchange rate fluctuations in currency rates will affect mortgage payments. To mitigate this risk, British buyers should use a bank for currency transfers that offer local and GBP mortgages.
Deposit Requirements: Deposit requirements for foreign purchases are higher than those for the UK. It's not uncommon for foreign banks to ask for a deposit of 20-40%, which nearly makes you a cash buyer.
Best Countries to Buy a Second Home
Imagine lounging by a sparkling pool in the Mediterranean, skiing down the Swiss Alps, or exploring ancient ruins in Greece. For many Brits, owning property abroad is the ultimate dream, offering an escape from the daily grind and a chance to create lasting memories. But where should you invest?
1: Dream Property in Spain: Sun, Sea, and Sangria
Spain has long been favoured by British holidaymakers, and it's easy to see why. With its warm climate, sandy beaches, and vibrant culture, Spain offers something for everyone. The Costa del Sol, Costa Blanca, and Balearic Islands attract those buying holiday homes.
As of 2023, the average price in Spain is €1,620. Coastal areas and islands may be higher, but bargains are still found inland. Spain welcomes over 83 million tourists every year, and the numbers are bouncing back post-pandemic, indicating a robust market and ideal time for holiday rentals. Southern Spain enjoys over 300 annual days of sunshine, and the Costa Del Sol is the most popular area.
2: Holiday Hotspots in France
France offers diverse landscapes, from the lavender fields of Provence to the glamorous French Riviera and the picturesque villages of Normandy. The country's rich history, world-renowned cuisine, friendly citizens, and excellent wine make it an attractive option for continental charm.
Average prices per square meter in France are approximately €2,300, though prices vary widely depending on the region. With numerous ferry routes and the Channel Tunnel, France is an accessible country for Brits. France has a perfect healthcare system, which is an essential consideration for those looking to spend extended periods abroad.
3: The Perfect Experience in Portugal
Portugal offers stunning coastlines, a mild climate, and a laid-back lifestyle. The Algarve features copious beaches and golf resorts, while Lisbon and Porto are also attractive for those who prefer city vibes with cultural experiences. In Portugal, expect around €1,250 per square meter, one of Western Europe's more affordable options. Portugal's Golden Visa program offers residency to non-EU investors, and the Algarve boasts around 300 sunny days per year, perfect for beach lovers and outdoor enthusiasts.
4: Best Locations to Buy Holiday Homes in Turkey
Imagine owning a home where East meets West, where vibrant markets, historical sites, and excellent beaches await. Turkey offers diverse landscapes, rich cultural heritage, and favourable property prices.
Thriving Istanbul: Istanbul straddles two continents and is rich in history and culture. Prices are significantly higher in sought-after areas like Beşiktaş and Nişantaşı. However, Istanbul is well-connected and has direct flights from major UK cities.
Cosmopolitan Antalya: Antalya, known as the "Turkish Riviera," is famous for stunning beaches, crystal waters, and luxurious resorts. It's an excellent choice for those seeking a coastal retreat with plenty of sunshine and outdoor activities. (Why Antalya is the perfect place to buy a holiday home in Turkey.)
Upmarket Bodrum: Bodrum, a favourite among the elite, is known for luxurious lifestyles, dream properties, elegant marinas, and historical sites like the Mausoleum at Halicarnassus. It offers relaxation and sophistication, perfect for peace and luxury. Bodrum has its own international airport.
Beautiful Fethiye: Fethiye, renowned for natural beauty, includes the famous Blue Lagoon at Ölüdeniz, stunning beaches, and the Lycian Way, a popular hiking trail. The region attracts nature lovers and adventure enthusiasts looking for active lifestyles.
Luxury Kalkan: Kalkan, a charming seaside town with beautiful beaches, clear turquoise waters, and quaint whitewashed houses, offer peaceful retreats that are elegant. Though smaller, Kalkan is popular among tourists seeking a tranquil holiday, ensuring a steady demand for holiday rentals. Kalkan offers a slower pace of life, focusing on relaxation and enjoying natural beauty.
Bustling Alanya: Alanya is a vibrant city combining modern amenities and a rich history. The town is famous for the Cleopatra beach and the impressive Alanya Castle; it offers a dynamic mix of relaxation and exploration. Alanya attracts millions of tourists yearly, supports a healthy rental market, and enjoys over 300 days of sunshine annually.
Browse Our Portfolio for Turkey
Our portfolio of beautiful properties in Turkey will interest anyone who has not yet decided where to buy or wants to know more about an investment strategy. Residential homes in Turkey are surprisingly affordable, especially compared to places like Spain, France, and Portugal, where many foreigners have become house owners.
Whether you want a furnished home, another source of income, or investment advice, we can help as a professional advisor. Our role as a real estate agent in Turkey has helped many people who ask themselves is it worth buying a house abroad, to invest in the country.
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