Vacation home - from an Investment Point of View

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K
We all love the idea of home away from home. Away from the pollution and fast life of the city, a vacation home seems to be a perfectly romantic way to spend a weekend every now and then. But are they really good investments?

To evaluate a vacation home as an investment option, consider the following
  • Liquidity - Vacation homes are tough to sell. The developer from whom you may be planning to or already purchased the apartment can use several marketing tools like advertising in national dailies, attractive brochures and events to market his homes. You on the other hand have no such resources except utilizing the services of a broker. Think in terms of future demand or rental demand and the investment prospect looks less rosy.
  • Transportation - A back breaking, nerve wreaking joyride is not something you would look forward to after a hard week at work .Your location needs to have good roads or other means of transportation like railways that will take you there without stress and in a comfortable time frame.
  • Amenities - Basic amenities like power and water supply are issues when it comes to vacation homes. Unfortunately most locations do need facilities like generators, water harvesting and the likes. A large complex with benefits like a club house, mini hospital etc is preferable to smaller standalone projects. But you will pay for these all year around, despite the fact that you may barely be living there for a few weeks.
  • Protection and insurance - An apartment locked away at a far away destination is at greater risk of theft and break-ins. You will have to buy insurance for the same. If you buy land then protecting your land from encroachments is a constant challenge. Another important point is that most vacation homes are fraught with risks like problems with environment clearances and unclear title deeds. Getting documents checked by a competent legal expert is necessary.
  • Maintenance - A vacation home will need the same care and attention of your primary home. Apart from regular maintenance you will have to spend on house keeping too. Some developers /property management companies are offering fully serviced apartments, but these come with a hefty price.
You can compare the costs involved in buying a vacation home with the option of simply putting you money in a bank and going on vacations to a choice of destinations ,fully serviced hotel rooms with food and drinks and all amenities with absolutely no hassles or maintenance costs.

Unless you intend to utilize the property frequently and for long periods at a stretch, or intend to live there post retirement, a vacation home will be a white elephant. You can try renting out the apartment during weekends to tourists, but in my opinion the logistics of managing such business is a put off. Over time your property may appreciate in value but such appreciation will be lesser than a similarly priced property in a far flung suburb of your city where there will be growing rental demand. Not to mention it will cheaper to pay for holidays as you go rather than make large investments in a property that you will rarely use.

Finally don't get swayed by guaranteed return assurance from some developers. Coming from the builder/developer community, I assure you they mean nothing. Try finding out how they plan to pay the guaranteed money and you will get your answer.

Buy a vacation home by all means, but not as an investment. It can at best be a personal asset that you utilize for family outings but definitely not with an idea of getting investments returns.

Comments

  1. Technology ConsultantJuly 31, 2011 at 5:58 PM

    Kavitha great post, you have mentioned valid and important points one should follow before investing in Vacation Homes.

    ReplyDelete

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