A permanent vacation home, holiday home or second home is usually a long-time investment, for decades, or even generations to come. In a low-income country, or a less busy countryside, it does not need to cost a fortune.
Understand
A holiday cottage, holiday home, or vacation property is accommodation used for holiday vacations, corporate travel, and temporary housing often for less than 30 days. Such properties are typically small homes, such as cottages, that travelers can rent and enjoy as if it were their own home for the duration of their stay. The properties may be owned by those using them for a vacation, in which case the term second home applies; or may be rented out to holidaymakers through an agency.
Terminology varies among countries. In the United Kingdom this type of property is usually termed a holiday home or holiday cottage; in Australia, a holiday house/home, or weekender; in New Zealand, a bach or crib.
People have second homes for a variety of reasons. In general, ownership becomes more economic the more time you want to spend at a place.
As a place to spend vacations and maybe weekends at some distance from the main home
As a place to stay when working away from home; working abroad or studying abroad
for elderly people to retire abroad, or to spend periods away from home in a comfortable manner
Families with children could prefer a vacation home over a hotel, with a safely adventurous environment, and opportunities to find new friends
As an investment to be leased out to others (“buy to let”)
As the main home for other family members
Family properties which have been inherited, or which used to be the primary residence before occupants left a rural area for the city
Although some points apply to any type of second home, this article focuses on homes for vacation use. We assume that the second home is some distance away from your main home, but it might be in the same country a few hours drive away, or it might be on another continent.
Characteristics and advantages
A second home or vacation home can be a home owner’s asset as renting it could provide additional income. Vacationers are opting for a single family residence that they can rent on a nightly or weekly basis. Vacation type properties are becoming popular not only for existing homes but also for building one.
Holiday cottages are found across the UK, with many destinations from town houses to forests. Many areas in the UK have seen a growth in the Holiday Cottage industry such as the Lake District and Cornwall. There are typically two routes to renting a holiday cottage. Either direct with an owner, or through the auspices of a holiday cottage agency. Several holiday home portals list cottages available direct from the owner, and charge an fee for listing the property.
Today’s global short-term vacation property rental market is estimated to be worth $100 billion.The holiday cottage market in both Canada and the UK is highly competitive – and big business. In the UK, this increased competition has led to significant improvements in the quality of properties on offer. This improvement in standards has in turn contributed to the increase in the popularity of holiday cottages for weekend breaks, offering in many cases the same standard of accommodation as an hotel, yet with the increased freedom that a holiday cottage offers.
One other significant development in the UK holiday cottage market is that of Farm Stays, driven partly by the farmers and the returns they get from farming itself, but also by the desire of parents wanting their children to experience rural life first-hand.
The rapid development of the Internet and technologies such as telephony and personal digital assistants that allow people to work from home since circa 1995 has blurred the division between vacation property and a primary residence. Some business people, including the British entrepreneur Richard Branson, use their luxury real estate for both business and leisure purposes.
Costs and effects
Financial and legal implications
In the UK, furnished holiday lettings offer other tax relief providing certain conditions are met. The current conditions are:
It should be available for commercial letting to the public for a total of 140 days in the 12-month period.
It must be let for at least 70 days in the 12-month period. (Where more than one qualifying property is held, it is possible to average the number of days all properties are let in total in order to meet this condition.)
The total periods of long term occupation may not exceed 155 days during the 12-month period.
Second home and holiday home owners used to be able to claim discounts in their council tax in the United Kingdom, as the property is vacant for much of the year. This is no longer true in many areas, including Carmarthenshire; if the property is empty (but furnished) no discount is permitted and the owner will be liable to pay the tax in full. But, In Cornwall, since 2004 second home owners can claim a 10% discount in their council tax. Prior to 2004, they could claim a 50% discount in Cornwall, they are still able to claim 50% in many other areas in England. The Welsh movement, Cymuned, promote the principle that owners of holiday homes should pay double the standard rate of council tax, as they do not otherwise invest in the local community. Testimony of this is to be seen in a report on the effect of holiday homes in Scotland, which found that those who went on holiday to Scotland spent an average of £57 a day, in comparison to just £32 a day spent by those visiting their holiday or second homes.
Community
Owners of holiday homes will occasionally move to their second homes permanently upon retirement, this can be a threat to the culture of an area, especially in Wales where the influx of non-Welsh speakers affects the percentage of Welsh speakers in the area and reduces the use of Welsh in everyday life. Hundreds of second homes were burnt between 1979 and the mid-1990s as a part of a campaign by nationalist movement Meibion Glyndŵr to protect the indigenous language and culture.
Get in
You should consider transportation when buying your second home. If getting to your dream château involves a strenuous hike over rocky footpaths, you may want to ask yourself whether you want to do that once you’re old and frail and how you’d get anything you need to your abode.
The nearby airport might have cheap flights today, but will it still see any service in decades hence? Airports in both Denver and Munich were moved overnight to new sites, with the new Denver airport being more than 15 miles/25 km from the old one and the Munich Airport even moving 20 mi (32 km). A rail line may have more staying power, but branch lines have been abandoned in the past. Roads may be tolled if politics change and what do you do if you can’t or don’t want to drive any more?
Most often, a cottage will be in a remote and rural location with no airport, no rail service (or, rarely, a money-losing skeleton of a rail service to some remote region where there are no highways) and no public transit. A few off-the-grid locations are only accessible by boat. Even if there is a drivable road, if it’s just a single lane of gravel across a neighbor’s farm (on private land), it may be impassible in winter if snow is not plowed. Many points, ranging from remote Newfoundland outports to a few of the Thousand Islands, have become ghost towns as the only access was by a ferry which is no longer running. Want in? Buy a boat (and find a way to keep it secure while you are away). The more remote a place is, the less priority will be usually given to restoring transportation links severed by man-made or natural disaster. If a trunk line highway is impassible for a day, it may make national headlines. If an avalanche cuts off your holiday cottage, you may only hear of it months later and the problem may take years to be addressed.
A property that’s off the grid and only reachable by float plane or snowmobile may look like a bargain (or a chance to “get away from it all”) initially, but a place that is difficult to reach will also be harder to sell later.
Some pieces of property come with a private driveway, or a cooperatively owned road. In that case, the upkeep cost is on the owner.
Type
Cottage/cabin: A detached house outside settlements. Plumbing, electricity and other infrastructure is usually inferior to urban homes in the same country, and the toilet might be an outhouse or similar. Cottages and cabins often lack proper heat or insulation, limiting them to seasonal use.
Old farms can survive as holiday cottages, where the land can be used for leisure activities, such as gardening and horse riding. Although they are built for year-round dwelling, this is according to the standards of their heyday, without modern comfort (heating may be by stoves only, and an outhouse toilet is less comfortable in cold winters). Later repairs may have mixed incompatible techniques; this can cause all kinds of problems. If you like the opportunities the farm or its buildings and milieu provide, this can be a bargain, but maintenance of the buildings may require quite some work.
Prefabricated house: An empty lot with building rights can be settled with a prefabricated house, provided that it is within reach of the delivery vehicle. Prefab houses come in different sizes and shapes, and they are usually economic and reliable. Make sure to find a solution for electricity, water supply and toilets. Making the foundations may be your responsibility and not included in the price, like any amount of finishing work. Also make sure the house satisfies all regulations in the building rights, that you get all needed permits and that you fulfill your responsibilities as commissioner.
Resort home: A cluster of houses or apartments built for vacation guests. Might have communal facilities. Occupancy might vary with seasons, from deserted to overcrowded.
Dwelling house: Living with the locals in an urban or suburban house built for year-round residence. Usually more practical and social than a rural house. Can be expensive, especially if you look for an attractive neighborhood.
Apartment: An apartment, condominium or flat with some communal facilities. Might be built for permanent residence or vacation. In some cases a set of apartments is constructed by dividing a larger house.
Gated communities provide more a perceived gain in security than actual gain in security and you may feel uncomfortable “hiding behind fortress walls”. At high-risk destinations, some companies won’t let their employees live outside one.
Static caravan/trailer: A caravan which is kept in the one place, often on a site of similar caravans. Generally these are larger than the caravan which you would tow behind a car, and with water and electricity connections. Not directly comparable with other second homes as a caravan has a much shorter life and is not a house. Depending on the design and type you may be able to move it around once every few years if you decide the current location is less than perfect.
Dacha: Common especially in the former East Bloc, it is in theory just a hut in a garden away from the city apartment, but has in many cases grown into a veritable second home over time. Some of those expansions may be illegal, but the law may not be enforced. There may be a stipulation not to live more than a certain part of the year in a dacha or rules requiring cultivation of the adjacent garden lot. Getting a dacha (or “Schrebergarten” in Germany) often involves buying out a previous owner, joining an association or having contacts. It is usually not easily available to non-residents of the country or region
Beach house: Properties on or near a beach are popular among people where either their hometown is far from the beach or the beaches nearby are too crowded. If you are building a beach house, make sure it can withstand the unique conditions, including being built on sand, and being protected against salt water and waves.
Pros
You don’t need advance scheduling for your own home. Come early or late, stay early or late.
Make your own rules. Handle wear and tear as you want, and improve if you have the time and money to make the place the one you like (within some limits).
Real estate is perceived as a relatively predictable and safe investment. If you buy in a recession and sell during a boom, you can turn a profit. There is of course a risk for the opposite.
House ownership might give some legal privileges – including easier residency or citizenship in foreign countries in some cases.
A prolonged stay in a new place gives opportunities for a new social network.
To spread the cost, owners can offer their vacation home to rental, home exchange or timeshares.
It can be something handed down in your family or to hand down to (biological or social) descendants and is often associated with memories and stories
Cons
Owning a piece of real estate involves a lot more paperwork (and risk) than simply going to a place for vacation:
Maintenance takes time and money. Finding and following up a repair firm away from home, is a challenge.
Vacation homes are prone to theft and other intrusions, especially when the owner is gone.
Any damage which happens while you’re away can go undetected for months, causing small problems to become larger.
The house is tied to one place. If you enjoy seeing more than one place, choose a location with many interesting attractions a day trip away.
There may be tax implications, such as having to pay property taxes in two locations and capital gains tax when you sell higher than what you had purchased it for.
Localities with a lot of vacation homes might seem sterile and empty out of season.
You are less flexible – if your airline chooses not to fly to the airport close to your vacation home or some public transit service is withdrawn you cannot simply go elsewhere.
If you own a structure (or structural improvements) on leased or rented land, the owner of the land may sell it out from under you. Depending on the local legal situation, it may be profitable for the owner of the former caravan park to sell to condominium developers, but the hapless tenant is left having to pay to remove or demolish structures on the land when the tenancy is terminated.
If the underlying land was freehold when the cottage was built, but has since become part of a national or provincial park, there may be severe restrictions on the use of the property – if it’s possible to remain there at all. Similar pitfalls apply to any structures built on native land; as the native first nation owns the underlying reserve, they may demand you remove your structures and leave at any time.
Buy or lease
All countries have different laws, regulations and tax systems for property. Sellers and real-estate agents might not tell the whole truth, and some fraud schemes are associated with holiday property sales. Seek out the destination country’s tax agency, or another national authority, for complete information.
Most people buy their second homes, but a few are leased. If you are leasing, you are likely to be making a long term commitment and many of the same considerations apply. In some types of vacation home development, you may have to do a combination of both – buy the physical house, but lease the land it is sitting on. Unless the house is cheap to build or easy to transport, the legal implications may be convoluted.
Buying a home is a major purchase and is subject to the local laws on property ownership (and sometimes special rules on second homes). You may be surprised at the differences compared with the laws you are familiar with at home. It is important to take good independent advice. Whilst you may get useful informal advice in the early stages of looking at buying a second home, you should pay for professional advice before you enter into any commitments (or sign anything). Unless you are fluent in the local language, it will be easier if you can find professionals who speak English.
In some countries there are taxes to pay on the purchase price of property and a higher rate may be charged for second homes. Find out what these are and budget for them.
Work out what the running costs of your property will be. Things to allow for include:
Local property taxes (rates, council tax etc)
Charges for road maintenance etc.
Management charges if you are in an apartment or park development
Insurance can be expensive if you’re miles from the nearest fire brigade (or the nearest fire hydrant). Small amounts of damage become bigger problems quickly if water enters a damaged roof at an unattended site. A monitored alarm system (or observant neighbors) are valuable, if they’re available.
Electricity, telephone and network will cost more in a remote location, if they exist at all; off the grid, your only connection to the outside world may be a satellite dish. Ability to have providers turn utilities off when the cottage is vacant for the winter (and the cost of doing so) varies. If heaters, sump pumps, monitoring or alarm systems must remain online, they will incur power costs and be more vulnerable to some disasters. Having the utility turned off by the provider may or may not reduce the yearly bill.
If you’re off the grid or the grid is sketchy, weigh the pros and cons of solar, diesel and small scale wind energy. Diesel tends to be cheaper in initial investment but has higher running costs as well as noise and exhaust problems. In remote locations there is also the headache of getting the diesel there and the question what happens in case of a leak. Wind power plants are often only economical at rather high energy output – often more than a single house needs. A small scale combined heat and power plant may be an option depending on climate (some can use the generated waste heat for cooling) and locally available fuel type. Using wood as fuel in a forested landscape may be cheap, but the cheapness may depend on your doing heavy and time consuming work or having good relations to a forest owner and a lumberjack.
Gas (where available; rural areas often rely on bottled propane)
Water and sewage. If you’re off the grid, a well and septic tank can be costly to maintain. Removing salt or sulfur from well water can be expensive.
Repairs – unfortunately this is almost impossible to reliably predict. While many buildings do need more repairs after a certain amount of lifetime has passed (often thirty to fifty years), depending on construction, climate and just plain luck you may live mostly maintenance free for decades or have to have expensive repairs done quite often. Knowing your way around easier repairs certainly helps. Knowing things to do to prevent certain faults before they occur can also save huge sums of money.
Costs of your trips to visit if property issues arise, or the cost of employing a local agent
Do you have any knowledge on the future of the neighborhood? Is your nice countryside villa in an area planned to become a suburb? Or where the motorway is to be built? At least check official plans. On the other hand, if most neighbors are old, the village may lose its shop, post office and bus line as the population drops – or you may lose the good neighbor who was keeping an eye on your place while you were away. On the other hand, don’t “bet” too much on a future that may never come. Mad Men (set in the 1960s) famously has a throwaway joke about an apartment being a steal because of the “soon to arrive” Second Avenue Subway – a line which only opened in 2017. All forms of infrastructure can fall victim to this, so don’t bet on that “soon to be inaugurated” piece of infrastructure if you cannot do without.
If you lease your house, the contract is not necessarily renewed when the term ends. What about your children (or grandchildren) who spent all their summers there and love the place? Even the “99 year lease” frequently employed in Commonwealth countries to mean “essentially forever” can expire, as happened in Hong Kong in the 1990s, leading to it being given over to the People’s Republic of China; something nobody who was around for the drafting of the original lease would have seen coming.
Eat
Smaller vacation homes have a very basic kitchen, if any at all. Many countryside houses are outside the electricity and water supply grid; if they have electricity, blackouts might be more common than in cities, possibly shutting down the refrigerator. Some countryside kitchens rely on propane, wood, or other fuels. A ground cellar can be used to keep groceries cool.
Drinking water might be drawn from a well, or from a retailer.
A vacation home far away from supermarkets and restaurants requires thorough planning.
Do
Rights for fishing or foraging might, or might not, come with property ownership, sometimes depending on how you write your contract. In some places old farms also entail old rights to distill your own alcoholic beverages out of surplus produce or various other almost feudal sounding rights or duties. Many (but by no means all) of those rights also have “use it or lose it” clauses embedded in them.
If the house is at the waterfront, boating might be an option.
While repairs can be one of the major downsides of a weekend home, many owners especially of weekend homes that are easy enough to reach and close enough for short trips come to enjoy upgrading and repairing and working on their weekend home and unlike many other hobbies, it provides with an immediately apparent benefit outside the fun of the hobby itself.
Which home is second
If the second home is in the same country as your main home (or a country in which you hold citizenship), you may be able to choose which property is regarded as your main residence for tax, voting and other purposes. It may be necessary to actually tell the authorities so that they don’t make incorrect assumptions. Some families declare the second home to be the main residence of one family member to claim tax advantages for both properties. On the other hand, public services may be tied to residency, and you will not want to have to go to your summer cottage for semi-urgent healthcare or to enroll children in local public schools. Some places charge a tax for second homes while others only charge a tax for a primary residence. This is in part because some funds are allocated by number of primary residents in a place. “Second home taxes” tend to be higher and more common in places that suffer from “cold bets” – a high number of second homes with residents that spend most of the year elsewhere.
How free you are to choose your official primary home varies by jurisdiction and sometimes by decisions by local authorities. In some countries, houses are classified as homes and vacation lodgings, where the latter may not be accepted as primary homes. Some may allow an unmarried couple to have a separate nominal primary residence for each person, while denying this option to married couples with rare exception. That’s unfortunate if your contingency plan is that you keep one place each if you divorce later.
Sale of a cottage may incur capital gains taxes in jurisdictions where the primary residence is exempt. Governments often offer subtle home ownership incentives, such as a lower down payment for an insured mortgage on a primary residence or tax breaks on mortgage interest payments, for which a secondary residence or a rental income property might not qualify. Some jurisdictions allow a buyer of an existing rental home to evict the current tenants only if they intend to live in the unit themselves.
If you own one building and rent elsewhere, it may be tempting to designate the owned land as “primary” – if that doesn’t put your principal residence in a high-tax jurisdiction far from your workplace and change your local school district to some small village a hundred country miles away. You may get a choice of designating a principal residence in another province or federated state, which will have a few implications as everything from income tax rates to the price of car insurance differs widely across jurisdictions. Some provinces deny professional or building trades licenses to non-residents. Want to draw extensive scrutiny? Accept a public or elected office, where seats are allocated per jurisdiction and often weighted to favour small provinces or states. Hordes of journalists investigating whether your tiny cottage on Prince Edward Island is habitable year-round may seem far-fetched, until your seat in the Senate (and its generous travel and lodging allowances) suddenly becomes dependent upon your actual residency in that province.
Concerns
Some real estate may be far away from the comforts of modern life, like running water, electricity or even mail service. While it may be a refreshing experience to “get away from it all” and usually reduces the price of a prospective second home quite a bit, many find themselves researching the costs of Diesel aggregates versus solar panels or small scale windmills within a few seasons of buying a “rustic” second home with no electricity. Houses that aren’t hooked up to local water or sewage mains may be environmental hazards or even violate local laws, and it is certainly not pleasant to deal with the waste product of human digestion in an area where no infrastructure to take care of that exists.
Purchasing buildings and land for occasional or seasonal use can get expensive – it is a house, however primitive, with the associated acquisition, maintenance and property tax costs. Some try to minimize these costs by sharing ownership with friends or colleagues; for instance, four different owners might each have use for a quarter of the time. These fractional ownership arrangements get complicated and awkward; what happens when one of the owners dies, goes bankrupt or wants out? What if a major repair is needed which one of the owners can’t afford? For that matter, what happens when all or multiple owners want the cottage on the same long weekend?
Houses are usually built for permanent living. There may be problems with moisture when heating is off (or vegetation not kept at bay), and keeping systems on when nobody is there is costly and may involve hazards: think of plumbing breaking in your absence. And what about a falling tree damaging the roof or breaking a window with nobody noticing until next year? Many of the steps in getting ready to leave your ordinary house are equally valid when leaving your second home for the season (and do not fool yourself to depend on a later visit that you might not have time to do).
If your house has special cultural values, it may be or become protected, severely restricting what you are allowed to do. Sometimes also quite ordinary houses have odd restrictions on what may be done. Most importantly, repairing a valuable 19th century house may require your using old techniques and materials, paying for skilled craftsmen instead of buying off the shelf products. You might enjoy its atmosphere and be proud of owning and maintaining it, but you’ll need the budget or the skills, preferably both.
If the property is in a foreign country, things get even more awkward. Some jurisdictions (such as Mexico) do not allow foreigners to buy land; others impose additional taxes or obstacles to obtaining a local mortgage, and in some you are required to cultivate the farm you bought. The property can be sold, for whatever the market will bear, but that carries additional tax pitfalls – any capital gain when selling, gifting or inheriting real estate may be hit with double taxation in both your home country and the property location. And then there’s the nightmare of border control; it only takes one unaccountable, faceless bureaucrat to arbitrarily decide your intentions in buying land are suspect, label you an illegal immigrant and ban you from the country entirely. You now own an expensive cottage which you can no longer lawfully visit; good luck trying to arrange its sale from abroad. Things are vastly easier inside the European Union (if you are an EU citizen), but your country may decide to leave the EU, creating a lot of unforeseen problems.
Pests can be a nuisance, especially in wooden houses, and in the tropics. Overall, natural disasters that aren’t a concern at your regular home might be a risk if your second home is located in a different environment; even, say, in a mountain range just a few hours’ drive away. Sometimes even things that could easily be solved or would not be a cause for concern in a home that you live in can become a major headache if it happens during your absence. If a storm knocks a few tiles off the roof at home, you can have it fixed before more damage occurs. If it happens during the beginning of a long off-season, you might come back to thousands of euros of damage.
Insurance for a second home is generally more expensive than for the same house being used as a main home. Insurance policies may impose limits on how long you can leave the property unoccupied, or require that the property is inspected regularly. Policies may also require the property to be heated (to a low or not so low temperature) in winter even when you are not there. Ensure that you are honest with the insurance company about how the home will be used or they will have an excuse to refuse any claims that you make.
Locals
Good relations with the neighbors can help immensely to prevent problems deteriorating and to find people or firms to do maintenance and repairs. Even in the wilderness there may be hunters, fishermen and others roaming the neighborhood, who could look for anything out of the ordinary when passing by. In sparsely inhabited areas people often know each other and every regular visitor, so getting in touch with the right people may be easier than one would think.
You may wish to consider what your neighbors will think of a house near them becoming a second home. In some scenic areas locals are unhappy that their families cannot afford to rent or buy a house nearby, due to property being bought as second homes by people from elsewhere. In other locations the locals may be delighted that a nearby house is going to be used rather than allowed to become a ruin. In general, the people around your second home – especially those who stay around most of the year while you’re not there – are perhaps even more important than the people around your first home. Build a good relationship, even a friendship with them and many things get easier. Annoy or enrage them and you may be in for a world of hurt.