Purchasing Holiday Home

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threeckat

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I am considering making an offer to purchase a holiday home in the south of Ireland, we have two small children and hope that we would make good use of the property over the next 5 to 10 years. I am a little concerned about the affordability aspect and whether there are hidden costs that I haven't factored in.

Net income - €3800 per month
Non-mortgage debt - €0

Value of PPR: €240k
Mortgage on PPR: €154k @1.15%
Monthly repayments - €515
Home insurance:€384
Property Tax: €374
Water Charges: €260

Annual Cost: €7198

Savings - €125k (will be used for purchase)
Purchase Price of Holiday Home - €195k
Approval for mortgage of €69,500 @3.6%
Estimate monthly repayment: €346
Home insurance:€265 quote received
Property Tax: €315
Water Charges: €260

Annual Cost: €4992

Combined Cost: €12,190 p.a. or €1015 per month.
Adding a stress test of 5% would add about €7,500 to that total or a monthly outgoing of €1633.

My question is whether a 5% stress test is reasonable, should it be more?
Are there costs I'm not taking into account (legal fees, survey and stamp duty are anticipated for the house purchase).
Is there a rule of thumb in terms of how much of your monthly pay should go towards servicing a mortgage?
Am I foolish investing all my savings in a single investment?
 
threeckat said:
Am I foolish investing all my savings in a single investment?
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Personally, I think you are. You are putting all your eggs into one basket ... a holiday home which will cost you even when you're not there.

I'd be more inclined to renting a holiday home every so often, vary the breaks/locations etc.

You'll have no issues with maintenance - something which will have to be done with two small children in toe.

Education costs will rise each year and college fees are closer than you think.

Your savings are a great peace of mind with a young family to take care of ... unexpected bills occur all the time.

Rent your breaks away ... don't buy ... Don't lose the security of your savings!
 
Holiday home insurance is usually very expensive with lots of restrictions attached. Your quote for €265 is questionable. Some of these policies insists you maintain the heating at a constant temperature throughout the long winter months or else require the water supply is turned off and all water tanks emptied. Usually the number one condition for holiday home insurance is that you need someone to internally inspect the house once a week. Do you have someone in the area that you can rely on to do this?

I would concur with what PaddyBloggit is saying above, this investment will be standing idle for most of the year, it would be far cheaper and less hassle to rent a place for the few weeks of the year you will be down south. When a house is vacant you are far more exposed to break ins and attracting undesireables. I already have a vacant house down south and am aware of all the pitfalls that go with it. I am constantly worrying about breakins, squatters and wondering what damage the latest storm has done. I would advise you to think very carefully before you go ahead with this investment.
 
If you are paying 515 a month for your mortgage, it must be 30/35 years.
Putting all your savings into a holiday home with another long mortgage is a big commitment on top of that.

Two costs that you need to factor in is petrol and the cost of kitting it out and ended up owning 2 of loads of things.
Either you have to bring everything you own in the car every time you visit, or you will have to buy two of lots of stuff.
Try explain the logic of waiting two weeks for his favourite toy/t-shirt which you left behind to a 5 year old.


I don't know how far from your PPR the holiday home is or how young your kids are but the reality of the next 5/10 years of your life are that you might not get as much use out of it as you think. As soon as your kids take up organised sport (GAA, football, basketball etc), your weekends are not your own anymore. We haven't had a weekend without at least two games / training sessions in different places for the last two years.
 
There was an excellent thread on this recently. Poster Leper in particular if I recall correctly.

I would advise against this unless you are positive you will make very very good use of it.
 
On the figures you have presented you can afford it. The question is do you want it.

Nevertheless €5,000 a year is a significant expense, though of course you are also building up equity in the holiday house in that mortgage repayment.


I can surely echo this, however you might see it as a good reason to buy rather than not. A friend of mine has their children in wetsuits surfing, swimming, canoeing all summer.
 
Is your mate a teacher or a barrister ?
Most of us only get 2/3 weeks holidays every summer.
 
I've just sold a holiday home - I simply did not use it anywhere as often as I expected. Also, I felt that if I went anywhere else on holiday, it was a sort of waste.

My accountant looked at it amother way.

Value €200k - if that 200K was invetsed wisely and with little risk, it should generate about €7k - €8k pa. Add in property tax, water charges, utilities and a management charge and you are getting close to 10k a year "cost" of the holiday home.

His question - what sort of holidays could you have on a budget of 10k a year?
 
Bogstandard how did you get to having 200K? Was it through buying a property 20 years ago and paying it off over that time?

Can you tell me where you're going to get 8K on 200K? After tax how much is it?
 
Bronte said:
Can you tell me where you're going to get 8K on 200K? After tax how much is it?
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I was thinking same thing with most banks paying minimal interest rates. What is the low risk product he is investing in to make that sort of return.
 
moneybox said:
I was thinking same thing with most banks paying minimal interest rates. What is the low risk product he is investing in to make that sort of return.
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I doubt very much we'll be getting a specific answer on the source of the return of €7k to €8k.
 
Thanks for the replies, I hadn't considered the kids activities angle, my 4 year old already has a full social calendar, never mind when camogie etc start.

The house is within 2 hours drive of PPR, and while it would be naïve to think we'd visit every other weekend, I'd hope that we would relocate for the entire summer. A rental for that period of time is circa €4500 in peak season. Part of my reasoning is that for an extra few Bob, I could do what I want with the place. There's a significant amount of land with the property and there is the possibility of renting it for grazing.


The home insurance quote does not include contents and comes with the stipulation that house must be temperature controlled to 9 degrees. Having someone inspect the property on a regular basis is a possibility.

I don't have €200k to invest. I have about €130k in various accounts and State Savings schemes, earning fairly little in interest to be honest.

If I'm completely honest, part of my underlying justification is that I've convinced myself that if we don't maximise the use of the property, we could sell it in 5 years and minimum break even, but that may be wishful thinking.

We're also thinking that at some point in the future we might move there permanently, and house prices will probably increase in the area, though again this is based on the fantasy that I could secure employment there.

Anyway, thanks again for the responses, they've been very helpful. It's obvious that I haven't thought this through nearly enough.
 
I had the cash put aside for a holiday home and considered it on and off for a long time. As an experiment I bought an old but very solid mobile home on a site where I knew some other families and with a low annual charge.

We get great use out of it during the summer. What I realised was that young kids and teens which much rather hang around with each other than with their parents so I definitely know I would never buy a stand alone holiday home until they are well past the age of wanting to come on holidays with us.

We also bought close to home - 45 minutes on the motorway when there is light traffic so even though I work part time we still get plenty of use from it.
 
It is an investment in that I am investing financially with the hope of actualising some future benefits; i.e. an improved lifestyle for my family. If this were a simple financial transaction based on financial rates of return, I wouldn't touch it with a bargepole.

My queries were as to the affordability of that lifestyle, i.e. have I sufficiently accounted for future interest rate moves and whether I am foolish to 'invest' or 'tie up' if you prefer, my available funds and take on new debt for a single asset which won't provide immediate financial return.
 
Reactions: jim

Put it like this.... You can achieve the same lifestyle benefits but also retain huge financial flexibility by doing a multi month rental in the summer rather than a purchase.
Your current liquidity gives you great financial comfort for whatever comes your way. The holiday home 'investment' will turn this liquidity into an ongoing cost centre.
In my view, better to rent the holiday home and invest in something more liquid.
 
May it's a matter. Holiday home insurance is usually very expensive with lots of restrictions attached. It's bad for you, as you said.
 
Cbcewjk said:
May it's a matter. Holiday home insurance is usually very expensive with lots of restrictions attached. It's bad for you, as you said.
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I am lucky in that I was with my previous insurer for years and when I vacated I got a great deal as I have never made a claim. At the time I had been quoted nearly three times as much by other insurers.
 
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