With tourism back on the rise globally, development in some tourist areas is booming. One of the most common deals being touted by development firms is pre-build sales. People that have fallen in love with a certain spot overseas have been investing in these pre-build opportunities often picking up properties for 70% and sometimes as low as 50% of the pst build asking price. What’s more, is many of the people investing in these properties are able to pay off their investment by renting their new holiday home out as a vacation rental while they are not using the place.
Property investment that includes a discount plus an opportunity to make more money via short term vacation rentals is just too good to turn down for many people. On the other hand, there are plenty of people missing out the chance to pick up a property in a tourist destination they love and only end up paying for around 25% of the property themselves.
First of all, there is the aforementioned pre-build discount wiping off a large percentage of the property’s final asking price. Secondly, the rise in vacation rental websites has meant that people that do own a holiday home in a popular tourist destination have the chance to rent the place out on a short term lease without having to invest heavily into marketing their home. In fact, marketing is virtually free because most vacation rental websites allow people to list their property without charge.
The rent that can be charged for a daily rate lease is around 4 or 5 times more per day compared to a 12-month lease. The other issue with a year-long rental contract is that it defeats the idea of owning a holiday home. With other people living there, it makes it impossible to use the place for a vacation.
Short Term Leases Decrease The Costs Of Owning A Holiday Home
The perfect and most profitable solution is using a vacation rental website to gain free web traffic and bookings. By using a vacation rental channel manager, people can list their property on multiple vacation rental websites. The channel manager will make sure that the calendars on all websites are in sync so there are no double bookings. Effectively, the channel manager is the central calendar that governs all dates on multiple sites.
Now the idea of listing a property on multiple websites is to help the holiday gain as much exposure as possible. This would mean using Agoda, Booking.com, HomeAway, Airbnb, FlipKey, Expedia, and so on. Different people prefer different websites, but as long as the holiday home is listed in all of them, then people that search for a vacation rental in the place where the holiday home is, then it will show up as an option for them to book it.
As long as the holiday home is in a good location, then it will get booked. Obviously the better the location, the higher the asking price can be as well. For example, if you purchased a property in the Algarve in Spain just 5 minutes from the beach with a beach view from the holiday home’s terraced balcony, plus the place offers parking or use of a car, then the daily rental charge will be more than a place in the center of town away from the beach.
The daily rental money that comes in via the vacation rental website should more than pay off any mortgage for the place and offer 4 to 5 times more in return compared to a yearly rental lease. Plus, this means the owner is able to block off dates on their vacation rental channel manager software tool for times that he or she wants to use the holiday home for personal use. It is the perfect solution.
What Is The Average Return On Investment (ROI)?
It is hard to say exactly what kind of return to expect because every area is different. In Thailand’s popular tourist resort of Hua Hin, people have recently been purchasing pre-build apartments and homes for around 60% of the post-build asking price. Many of the properties here are worth roughly £75,000 but have been purchased for around £50,000. This is for anything from a 1 bedroom house to a 2 or 3 bedroom apartment not far from the beach.
Many people have remortgaged to achieve the asking price or arranged a separate mortgage using banks in their home nation. The tough period to overcome is the ‘build’ phase. This is when the mortgage is being paid while the property is being built. Once this period is over and the property is ready to be moved in to, then the next phase is purchasing furniture. A decent investment would be £2,000 to £5,000 depending on the size of the property.
Once the place is ready, the place is already worth £20,000 to £30,000 more than the original investment. Usually, a 1 bedroom house or 2 to 3 bedroom apartment will go for around the same daily rate. In peak seasons, the place could fetch up to £3,000 a month for 4 to 5 months. Then during off-peak probably around £1,000 a month. Plus, there is New Year, Thai New Year, Chinese New Year, and many other Thai holidays in which the price will increase for a few days during the off-peak season.
The return on investment renting the place would be roughly £20,000 a year not including electricity or water costs, paying a yearly fee of roughly £1,000 to the property management company to keep facilities in order, and your time managing guests. All that said, there is still a healthy £15,000 profit to made on the place and worst case scenario £10,000 in a year. With that kind of return, you could pay off any mortgage on the property in less than half a decade.
Can I sell it immediately?
Although, as there are other places being sold, it would be hard to sell the place immediately, although not impossible depending on the contract you have with the property management company. Normally you are prevented from selling the place until the property management company or infrastructure development company has sold all or a large percentage of the properties. Therefore, an immediate turn over is not always possible.
Do Your Research!
Although the numbers mentioned here are attractive, do not just dive in head first to any property investment opportunity you get within a tourist area. Instead, create an account on some of the vacation rental websites mentioned above. Start to look at property deals and the areas they are in. Next, use the vacation rental website to search for properties available for vacation rental purposes in that area. Look at the prices being charged, availability/occupancy rates, and so on.
Ask yourself questions like; Is there a beach nearby? Is there public transport nearby? Does the place have a gym or a swimming pool? Is it near a golf course? What restaurants are close by? Is there parking for people that want to rent a car?
With the correct research and the right mortgage broker to help you secure the funds for a pre-built property, anyone can make the right investment at the right time. In 5 to 10 years time the property will have been paid off, your net worth in assets will have increased, plus there is still a monthly income to be had from the vacation rental income. You may even decide that you want to invest in further vacation rentals in the area, or finally give up your job, sell your house and move to the area full time.
The possibilities with the right research and a wise investment are endless!