Buying a second home as capital investment

A holiday home as capital investment

According to the German newspaper Die Welt, more and more properties serve as direct capital investment. Most German buyers purchase locally for this purpose (also see our Holiday Property Market Report 2017). But buying a second property also has other benefits. Apart from it serving as a long-term capital investment, many middle income buyers also see a second home as an immediate source of income. Three out of four holiday home owners buy with the intent to let their second home temporarily or permanently.

There are many good reasons for this. On the one hand, an occupied property increases security. On the other hand, the rental income can be used as additional income or to refinance the holiday home. The price of the property also plays an important role for the new home owner. The more expensive it is, the less the likelihood of immediately finding tenants.

A holiday property as retirement income

However, a holiday home also meets other capital investment needs: Apart from the immediate income from rent, one of the most important reasons for buying a second property is retirement security. The low interest rates at present serve this purpose well, as they facilitate property financing. In this way, buying a holiday home can also provide financial security for the future in addition to the state pension. With regard to potential income, keep in mind that the demand for private accommodation is rising more than the demand for hotels.

The higher the price of the property, the more time the owners will spend in the holiday home as a rule. According to a study by FeWo-direkt, cheaper properties are generally purchased by households with a lower net income and then used as a source of capital to generate passive income from rentals. These are rarely used by the owners themselves, on average only three weeks per year.

Who buys where?

In the German market, more than half of buyers are buying a second property in Germany. These properties are spread across various regions that are considered particularly attractive. If second properties are purchased abroad, then most often in Spain and Italy. The cheaper the property, the higher the likelihood of it being located in Germany.

For foreign buyers, achieving a rental income or using the property as capital investment is just as important as using the property for short holiday trips. This second aspect is especially important for buyers living in urban conglomerations.

All in all, holiday properties are much more versatile that one would generally expect. If you keep in mind that not every buyer wants to use the property for holiday purposes, you will gain a better understanding of how the property market works.