Thinking Long Term: Buying or Renting
Source: Kenzoka at flickr
After going to the same place on vacation two or three times in a row, it’s unavoidable to start thinking about buying your own place in such an idyllic place. Especially if you can see yourself visiting several times a year, or for an extended period of time, there are many benefits to buying versus renting or staying in a hotel:
- Cheaper annual ownership cost compared to renting the same unit (some units rent for thousands of dollars per week, when they only cost hundreds of dollars per month to own)
- Ability to profit from the unit, or at least offset your maintenance costs, by renting it out when you’re not using it (especially in popular tourist areas)
- Ability to profit from the unit when the property values of the area go up
- Increased level of comfort in having your own place compared to “borrowing” someone else’s (pillows, towels, linens, bathrooms, showers, kitchens, utensils, and other personal items)
- Ability to customize the unit to your tastes
- Ability to make friends among a consistent set of neighbors/local restaurants
- A place to eventually retire to
Those are just some of the potential benefits to property ownership in a vacation destination. These are usually the only things mentioned in the property developer’s brochure as well.
Buying a timeshare property has it’s own set of benefits:
- Ability to have access to a property for only a fraction of the cost of ownership
- Professional property manager, not having to worry about security, cutting the lawn, etc.
- Other rights, such as being able to trade your timeshare unit for another in another country
There are some drawbacks to home ownership in a vacation spot as well:
- Property security when you are not there
- Dealing with foreign builders, legal system, city government, taxation, etc.
- Being responsible for property maintenance, such as cutting the grass and fixing the roof
- Losing the flexibility to travel to other countries or even within the same country
- The risk of property values falling
- The risk of exchange rates falling (like some British people are experiencing with their Spanish vacation homes)
- Political risk (such as foreign property owners in Cuba in the 1960′s)
- Taxation issues (owning land in a country may make you a resident, and becoming a resident may make you eligible for income taxes on your worldwide income)
- Immigration issues (again, being a land owner might make it more difficult to obtain a tourist visa, if the country thinks you fit better into the definition of resident)
- The hassles of selling when you no longer wish to visit
As you can see, there are a lot of (scary) risks! Many of these items are as a result of the vacation property being in another country, compared to just buying a cottage in your own.
You may want to do some research on the “Spanish Land Grab” as an example of the types of things that can happen when you don’t expect. Keep in mind that the property laws you are used to in your home country can be radically different than the property laws in your dream locale.
I don’t want to scare anyone with this list of risks. Just things that can happen.
Many of the scary legal problems can be avoided with a competent lawyer. Many of the financial risks can be avoided by having a solid personal financial situation. If a 25% fluctation in the exchange rate is going to make living and owning outside the country a problem, you may not be ready to own yet.
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