Let's talk about vacation properties

At first glance, fall might not be the best time for a vacation property story. At least if we are talking about summer destinations. However, it doesn't cost us anything to daydream a little and explore that potential scenario, as we approach a long and cold winter, which in the end can also motivate us to buy real estate "somewhere in the south".

In our Canadian financial industry, there has been a lot of talk this summer about that type of real estate. After the long-awaited return to normality, it seems that this summer, almost everyone managed to escape somewhere. And some, as they say, not fast enough, nor far enough. And now, when we are back, we can think about everything in peace... Maybe Florida, or some small stone house in Tuscany, Montenegro, or Greece? And why not?

A worthwhile investment

For smaller investors, vacation properties have become a viable type of investment in recent times. We can all see that buying a home in Canada is not what it used to be (far from turning your back on it) as it has become very difficult for income to cover expenses. Even real estate in smaller towns has become more expensive so that it does not represent a much better alternative.

If you go to the Instagram page of “bargainhomesabroad” and if you do a little work, you will see that for about $50,000 (US) you can own some beautiful properties in the mountain village of Montalto Carpasio, near Monaco and France. That may be an extreme example, but for someone living in or around Toronto, that amount of money seems like a great deal.

Will it be an investment or for personal use?

Before you start looking, think and decide whether the property will be for personal or investment purposes.

If it's personal, can you afford it? Have you calculated how much the annual loan and other fees are? Of course, if it's a much cheaper property, it would make sense that you probably could. But even if you decide to buy something more expensive, if it is a place that fulfills you and where you will spend a lot of time, then that all makes sense.

Therefore, even if it is a property for personal use, it does not mean that it is not an investment. For example, if you have a large family, the cost of renting a vacation property can exceed the cost of paying off the loan. Especially if you can spend more time there annually, and if you have the option to work for a while, while there. And sooner or later, the value of the same should grow, and the loan should be paid off one day.

And we should not forget that it is a long-term investment. For you, your children, and grandchildren, etc.

If you were to buy real estate as an investment, you first need to find out how much income you will be able to receive from future tenants. What are the costs and how much you will have left over after the overhead is taken care of. Also, whether you will rent or lease it for a longer or shorter time period. If it is shorter, who will be responsible for maintenance, cleaning etc. Is it worth it to find someone directly or maybe it is more profitable to hire a company that will take care of that detail for a certain price, of course. And maybe it wouldn't be a bad idea to approach one of these companies at the very beginning and ask them which investment properties are doing well financially.

Where and how to start?

As with any real estate, location is extremely important, so you need to get to know it well. Internet searches are good, but nothing can replace a personal site visit. Allow yourself plenty of time to familiarize yourself with all the various aspects of the location you plan to invest in... Maybe the location is great for vacation, but how is it for business? Are there administrative problems? For example, can you open a bank account as a foreigner? Do you know the local language? What is health care and health insurance that is very important for the future when you are in your older years, like? All this can be found out if you know someone who has already invested in the same location. Some time spent can go a long way because it is better to spend a little money on a plane ticket and accommodation than to purchase an investment that is not for you.

There is also the big issue of taxes... Are there tax implications when selling real estate in the future? How much transfer tax do you have to pay when buying? Some states have a relatively low tax rate, however the tax that must be paid when selling real estate can be huge. Like for example, Florida.

Connecting with a local attorney or notary can be a great first step for these and similar issues. Take Europe which uses its European legal system which is different from the Anglo-Saxon legal system we are used to here in Canada. These are some things that need to be examined at the very start.

Additional benefits

Some countries offer additional benefits if you invest in their country. The most popular of these is the so-called Golden Visa, which gives you the option of becoming a citizen of those countries if you buy a certain value of real estate and hold it for a certain number of years. Some of those countries are Greece, Spain, and Malta…

And finally, how to finance it?

Each state has its own rules regarding real estate financing. For example, in Florida or some other states in the USA, there is a high possibility of getting a loan with a down payment of 35% since there are many Canadians who either live there or spend a good part of the year there and the local banks already have a built-in model for such situations.

In some other countries, up to 50% is required, while in some, after the financial crisis of 2008, they do not offer a financing option for foreigners at all. So that is one of the first questions, if you need financing, in the country where you plan to buy.

In most cases, from my experience, especially due to relatively low investment prices, Canadians use the credit potential established based on their Canadian real estate. And as real estate in Canada has grown, access to that money shouldn't be a problem.