Buy that holiday cottage you love so much, and rent it out as a money spinner. What a lovely idea! But before you sign, get real. Bengt Saelensminde on the pitfalls of buy-to-let.
You’re on holiday. You fall in love with a place. You take a sneaky look in the estate agents’ windows. Your mind starts whirring. Why not save yourself the cost of a villa next time? Better still, turn it into a money-spinner! Well, before you get carried away, I’ve been a landlord in France for many years – both in the holiday market, and traditional tenancy area. And let me warn you that the pitfalls for the uninitiated are myriad.
Holiday lets
Top prices on holiday lets only apply at the height of the season – the school holidays. Even when you get a couple of good rents, you’ll have to take into account some big costs – the biggest of which is reaching your clientele. Professional management companies can be a godsend, but they can take as much as a third of your gross rent. And they won’t take on just any property. For a summer place, they’ll most likely insist on a swimming pool. If you own or have ever owned a pool you’ll be acutely aware of the costs and hassle involved in keeping just this one thing maintained.
And on holiday homes, this is just the start. These things often suffer through infrequent use – it’s as if the property is trying to tell you it feels neglected. The plumbing furs up. Toilet floats seize, pipes burst, roofs leak – all manner of misery ensues. Winter costs often offset those lucrative summer rents.
Other hassles include basic things like changeovers. It should be simple to do a quick clean and ensure that everything is in order. But in my experience, finding the right person or company to do it is tricky. And if you haven’t got the right team, you’ll soon know. People can be extremely forgiving – but not when it’s their dream holiday! Do you really want the trouble?
Continental rental
So how about the traditional rental market? I’ve moved a couple of my properties over to this sector. As continental price rises haven’t been as extreme as in the UK, yields are generally more enticing. Where I am in France, I’m getting near enough 5%, compared to sub-4% in much of the UK (according to the Global Property Guide).
But there’s a downside. Tenants typically havefar more protection on the continent. So before you hunt for a buy-to-let, get hold of a standard tenancy agreement and get it translated! In France, for example, it’s very hard to get a problem tenant out. They may have rights to change all manner of things, and stay for years longer than you would like.
Even if you get an eviction order, they can only be put into action at specific times of year – you can’t hoof somebody out in the depths of winter. Also check the tax situation. There are usually property taxes payable by the landlord as well as the tenant.
Not put off buy-to-let yet?
Still keen? A few final warnings if so. UK estate agents have a pretty rancid reputation. But I assure you, they’ve got nothing on their continental counterparts. For starters, commission rates are generally in double digits. Worse, if you’re selling and you agree a sales price with the agent, he or she is free to market (and sell) the property at a higher price – and keep the difference. So whether you’re buying or selling, be aware of how much the agent is getting.
It could be a good sign you’re overpaying. And if you’re asked to sign a contract, find out exactly what’s in it. Unlike England (Scotland is different), in Europe you generally sign an initial contract, stating an intention to buy, and put down a deposit. So if you haven’t read (or understood) a clause in the contract that you later don’t like, you could come a cropper – pulling out of the deal is likely to cost you your deposit.
Consider inheritance law too – in much of continental Europe you can’t just bequeath the asset to anyone you like, not even your spouse. This is one reason why many British buyers prefer to buy under the wrapper of a business. On top of that, stamp duty and notary fees come in at around 8% – and you thought the UK was bad!
A knock-on effect of high transaction costs is that transaction volumes are pitifully small – that means it’s hard to sell quickly, and if you need to, you’re likely to get less than you were expecting. So when you go off on your summer holidays, especially in Latin Europe, it’s worth heeding a little bit of Latin when you’re doing your fantasy window shopping at the local estate agency: caveat emptor.