Holiday Apartment as an Investment: Only Partially Suitable
Holiday apartments are generally not suitable as an investment. They are difficult to finance and the income is usually irregular or generally uncertain.
Properties located far away generate travel costs or costs for external service providers. Abroad, language and legal barriers are added. Therefore, this article focuses only on holiday properties in Germany.
Exception 1: It pays off better because you like to use the property yourself frequently
If the property is used often by the owner, one could offset the cost of comparable holidays that were saved.
If the holiday property is also popular with others and therefore well booked, a return-oriented owner would only use it when it is otherwise vacant.
So if you wanted to improve the profitability of a holiday apartment by using it yourself frequently, you’d face two limitations.
Not only would you always vacation in the same place; for profitability reasons, you’d also have to adjust your own holiday times according to guest bookings.
Exception 2: The property is so attractive that it pays off long-term
Proximity to the beach, a location in the mountains or near a tourist attraction increases the likelihood that a holiday property is profitable in the long run.
If in addition to a good location the property is also well-suited as a holiday home and has a minimum size, it may qualify as a long-term investment.
The problem of potentially irregular income or prolonged drops due to pandemics or similar events remains—issues that typically don’t affect residential real estate.
Location, location, location—even for holiday homes
For holiday apartments and houses, the saying still applies: the three most important factors for real estate value are location, location, and location.
With residential properties, location value is often assessed by population trends. For holiday homes, you’d also have to monitor both your own occupancy rate and regional tourism trends.
Holiday homes are harder to finance
Banks tend to reject or scrutinize financing for holiday homes more than for residential real estate, resulting in:
- Higher equity requirement: Banks typically require a higher equity share for holiday homes.
- Stricter criteria: Banks often apply stricter requirements, such as additional collateral like a fully paid-off property or a life insurance policy.
- Fewer subsidies: Many property subsidy programs are not available for holiday homes.
Local bank solution: It may be worthwhile to contact regional banks, as they often have more experience with holiday rentals.
Holiday homes are an entrepreneurial investment, not a financial asset
According to an investigation by Stiftung Warentest the conclusion is that holiday properties are not a secure investment, but rather entrepreneurial ventures with risks and opportunities.
On the platform fewo-direkt.de, the average occupancy rate was just over 50%, according to the operators.
The 2 to 5 percent returns mentioned in the above-linked 2021 article on test.de show that the higher workload and lower income stability do not significantly improve returns compared to residential real estate.