Turn the family holiday into a family fortune?

Making money from your family holiday might sound tricky, but, with some research and a bit of local knowledge, it could be done.

A second home somewhere you love will set the scene for years of holidays, from trips to the seaside with the toddlers to wintery walks on the beach with grandma and grandpa. If you choose wisely, it could also provide a steady stream of rental income and the potential for capital growth for the family portfolio. Or, if you can’t bring yourself to part with it, a valuable gift, full of happy memories, to pass on to your children.

Almost 250,000 UK properties are now registered as second homes and, according to the last census, 165,000 Britons say they spent more than a month in their holiday homes.

In order to help maximise the financial advantages of second home ownership, Stuart Law, chief executive of property investment company Assetz, advises investors to opt for a repayment mortgage, rather than an interest-only loan. That way, he says, a holiday home that you own outright could make a sizeable contribution to the household pension pot.

Like any property purchase, however, buying a holiday home is a big undertaking and you should seek independent financial advice. Asking yourself these questions could help you guide yourself to potentially the right one for you and your family.

Do you love the place enough to keep coming back?

It’s easy to fall in love with somewhere after a gloriously sunny weekend break, but if you’re looking for a regular family retreat you will need to be sure that you’re ready for a long-term commitment. Will the charm of the area wear off, or will you always look forward to packing your bags and setting off to your home from home? There’s a more mercenary reason for asking these questions, too: if you want to keep coming back, your potential customers will probably feel the same way.

Who are your ideal tenants?

Think about the people who will be attracted to your chosen destination, and the kind of property that will appeal to them. In a scenic setting of mountains and lakes, a 1960s brick-built bungalow will be an immediate turn-off. In towns or cities, location is key – visitors may not have transport, so being within walking distance of attractions, restaurants or public transport may be the deciding factor. If you are expecting elderly people or families with children – or if you plan on bringing along your own parents or toddlers – steer clear of properties with steep staircases, uneven floors or other hazards. 

How will your visitors get there?

Before you are seduced by the romance and solitude of a remote location, think about how prospective renters will get to your property. Good road connections or, if you’re buying abroad, an easy drive to a nearby airport, will broaden the appeal of your property. And, if you’re going to be making regular trips with all the family in tow, that last hour on narrow, tractor-ridden country lanes might soon start to grate.

Do the sums add up?

Find other holiday home-owners in the area, or talk to a letting agent about the going rate for various types of property, and how many weeks of the year you can expect them to be occupied. When working out your likely return on your investment, factor in council tax, the cost of maintaining and improving the property, and income tax on the rent you receive. As a guide, an in-demand holiday home can potentially yield a return of about 5 per cent. That might not sound like stellar performance, but the rental income could be eclipsed by capital growth potential. “UK holiday homes tend to be in prime locations, where supply is constrained by tight planning and demand stimulated by City bonuses,” says Investors Chronicle. “So, for a comparable yield, they offer better capital growth prospects than your average rental flat.”

Where to buy

Narrowing your search to an area you already know well will improve your chances of getting a good deal, as you’ll be familiar with the prime spots and the places to avoid. If you do fall for somewhere after a single, special family holiday, go back at another time of year before taking the plunge. That pretty Spanish cottage surrounded by lush meadows you so enjoyed at Easter might look more like a parched desert outpost in July – and you’ll need a long season in order to get the best out of  your investment. 

In the UK: Well-established holiday destinations such as the Lake District, the Norfolk and Suffolk coasts and West Wales will deliver high occupancy rates and yield substantial rents, but they will be priced to match. For a lower initial outlay, look for parts of the country which offer similar charms without the overheated property market. North Yorkshire, for example, is popular with hill-walkers, but cottages there are a third cheaper than in the Lake District – but remember that rent yield and occupancy rates will also be lower.

In Europe: With the pound struggling, many people might think that now is not the time to buy abroad, but post-Brexit, many of the popular markets for British holiday home-buyers – Spain, Portugal and Greece, for example – still offer plenty of bargains, especially compared to prices back in the UK. As the Daily Telegraph notes, leaving the EU should not make buying a second home on the continent any more difficult: "plenty of non-EU nationals currently buy in France, for example," the paper notes, "and this year it has made property taxes equal for all buyers, irrespective of where they are from." Be cautious, though: buying property abroad can be a daunting and occasionally risky prospect, so take advice before committing yourself.

Further afield: Britons have traditionally been adventurous when it comes to buying overseas property, with popular destinations including the United States and South Africa. Regardless of where you look, the key to getting value out of a long-term overseas home, according to Tom Walker, a property fund manager at Schroders who spoke to the Daily Telegraph, is to "ask yourself why, in five years’ time… would people want to live there." If you can satisfy yourself that a home is likely to retain value, sits in a growing market and is a place you would like to visit yourself, then chances are it could be a good investment.

The forecast of future performance is not a reliable guide to actual future results. The value of investments may fall as well as rise.