Real Estate

This is how you solidly finance your dream of a holiday home

Many dream of it: a holiday home in Mallorcaimago images / Dieter Mendzigall

On the way from the beach to the hotel, just past the ice cream parlor, and then a look into the shop window of the local broker – these are holiday rituals: five rooms, a shady garden, and from the terrace you can still see a bit of the sea, for 575,000 euros . That would be something! You already have plenty to talk about at dinner.

Compared to the prices at home, small dream houses in the south often don’t seem so unrealistic. Especially when you take into account possible income from the rental, 1000 euros per week are not uncommon in high season, experienced vacationers know. However, you guessed it, it’s just not that simple. That is why Personal-Financial.com has put together the most important costs for everyone who is thinking of a holiday property abroad – a small budget planner for the big dream, so to speak.

According to a study by the broker Engel & Völkers and the rental platform Fewo-direkt, Germans spend an average of 235,000 euros for a holiday home abroad. They pay a little less for a second home inland, i.e. on the North and Baltic Seas or near the mountains. Three out of ten buyers make do with a maximum of 150,000 euros, a third pays 150,000 to 250,000 euros and another third more than 250,000 euros. Unsurprisingly, real estate is most expensive in Switzerland (350,000 euros on average), closely followed by Spain (315,000) and Austria (280,000). In France and Italy, 200,000 to 230,000 euros are enough.

The first major difficulty facing property buyers abroad will be financing. Basically, foreign real estate has to be paid for for the most part from own funds – banks are usually reluctant to do this: German institutions generally do not accept foreign real estate as security. Because if there are no payments, they have considerable problems accessing them. And foreign banks have access to the property, but fail because of the borrower’s salary. That is why they only grant small loans, if at all. Therefore, more than 50 percent of the house value is hardly in it, unless you use the German property as security – but this is also a risk that you have to be aware of.

It is therefore hardly surprising that almost half of German buyers pay for the house or apartment in the south entirely from their equity capital, according to the Fewo direkt study. Only 16 percent stated that they had bought the property with a mortgage or a bank loan. Around 40 percent needed a loan in addition to equity, but this was mostly manageable. After all, every fifth holiday home owner stated that the purchase almost failed due to finances. Language barriers, laws and bureaucracy are other major obstacles.

And they should still have reserves even after the transfer of the purchase price: Because only then will the real estate transfer tax be due, which is almost abundant in some countries. In Belgium, for example, it is 12.5 percent of the purchase price in many places. In Italy it is ten percent for second homes (first homes are significantly cheaper there with three percent), in Spain it is also six to ten percent. Greece now only requires around three percent; buying the house in the Netherlands is the cheapest at two percent.

Even more than with homes in this country, owners of holiday properties should know the additional costs before they embark on the adventure. Personal-Financial.com sorts possible income and the most important costs on the following pages.

# 1 rental income

It sounds sumptuous when many holiday home owners state their rental income in the Fewo-direkt survey as more than 10,000 euros a year, some even up to 25,000 euros. In return, however, every fifth person has to make do with a maximum of 5000 euros per year (i.e. just over 400 euros per month), and another 30 percent only with 5000 to 10,000 euros. Half of the holiday home owners get a maximum of 833 euros per month from the property – mind you the costs. And the current operating expenses are quite substantial. This is because they can amount to up to 40 percent of rental income, say real estate experts from the Bulwiengesa analysis company. In order to generate an acceptable return, the property should be rented for at least 23 weeks a year, the Bulwiengesa analysts also advise. But only a third of the landlords can do that.

# 2 property tax

The level of property taxes varies, of course, depending on the country; in some places, it also varies within the states and their regions. For example, in Spain they range from 0.2 to 0.6 percent, in Italy they can range from 0.4 to 1.01 percent, and Switzerland levies taxes of 0.5 to three percent. The British have the highest tax rates at up to 3.4 percent (but there are discounts in some regions and for certain owner groups). The USA and the retirees’ paradise of Florida are also growing strongly with three percent of the property value. On average, US vacation home owners have to shell out $ 2200 a year. In Europe, 1200 euros are due annually for a house worth 200,000 euros, but it can also be 6,000.

# 3 insurance

Not only the building itself, but also the furnishings should be insured. Maybe even against burglary and vandalism if the house is a little out of the way. Household insurance for your primary residence is not enough. They can be used to secure things that you take on vacation to a limited extent, but not the permanent furniture in your holiday home. The price for the extra policy is based on the value of the property and the location of the house, in the case of the household policy also on the sum insured and the length of stay. 300 to 500 euros should be calculated at least for the building insurance, for the household insurance rather a four-digit sum.

# 4 administration

If you rent out your house, you usually need an on-site administrator to hand over the keys, organize the cleaning and look after everything else. For the basic key handover service, owners should calculate at least 100 to 150 euros per year. Some agencies that also do the cleaning charge around 20 percent of rental income plus sales tax.

# 5 electricity and gas

The amount of electricity or heating costs that goes into each month depends, of course, on how wasteful or economical house users are. And of course whether the house has a sauna, pool or whirlpool – and whether it is in warm Spain or in cold Denmark. In Denmark, where electricity costs are certainly not among the lowest – and the houses often have a sauna and whirlpool – holiday home providers expect comparatively lavish monthly costs of around 200 euros in summer and around 400 euros in winter. In Spain you should also get there with 50 to 70 euros.

# 6 renovation

A last major item is renovation, for which you should spend a large sum every few years. Half of the holiday home owners said they recently invested around 5,000 to 10,000 euros in embellishments. They especially prettied the grounds, they treated themselves to new furniture and made the bathrooms fresh. In addition, you should keep the telecommunications technology up to date on a regular basis. Because everyone wants to switch off during the holidays, but more than two thirds of holidaymakers say: Fast internet and WiFi are essential.

# 7 garbage disposal

The costs for this can hardly be stated as a flat rate, but they can be obtained from the local communities. In Spain, it is said, one would usually get there with 150 to 200 euros a year. In Italy, on the other hand, there is a service tax (for street lighting, sewage), which is based on the cadastral value of the house and is between one and a maximum of 3.3 per mille, which is 200 to 660 euros per year for a 200,000-euro house. If you want to be sure of the calculation here, you start with what you pay for your first place of residence in Germany.


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