Key Factors to Evaluate Before Buying A Vacation Home.

Looking to invest in a vacation home? Keep these factors in mind

Dream of a buying a holiday home is slowly turning into reality for Indian investors who believe in the edge that ‘realty’ holds in today’s market. Call it a vacation home, holiday home or simply a second home—favourable destinations away from the city's hectic pace, yet close enough for comforts of a community, work, and business—are attracting individuals who know their worth and equate magnificence with their way of life. And what adds as a luxurious bonus is the opportunity to transform a vacation home from a high-living product to a high-yielding investment product. 

Vacation rentals market

By definition, the Vacation Rentals market offers private accommodation bookings. This includes private holiday homes as well as short-term rental of private rooms or flats via booking aggregator portals such as Airbnb, travel agencies or direct phone or email bookings.

According to reports, in India, the Vacation Rentals market was expected to experience a rise in revenue, with an estimated projection of US$2.12bn by 2024. The sector is predicted to maintain a yearly growth rate of 8.72%, resulting in a market volume projection of US$3.22bn by 2029.

A Vacation home that grows your money

Hills and beaches were for a long-time destination that tourists visited over a holiday. Post pandemic there has been a steep rise in tourism and staycations with tourists choosing vacation homes or rental homes over hotels and resorts due to privacy, safety, and hygiene concerns. Add to it the flexibility to run business or work from anywhere. This has further fuelled the demand for development of vacation rental homes in plotted residential areas of popular destinations, coaxing investors to dive deep into the vacation home asset class, for a good 10-14 percent return on investment. 

We sincerely believe that no dive should be plunged into without gauging the depth of the deep waters. This blog will help you ascertain all parameters that need a thorough inspection and analysis before getting into investing in a vacation home. 

Location and Accessibility for a holiday home:

Where is home, is a classic question, but where should the second home be, is a crucial one. The whole idea of buying a vacation home is to have a temporary or semi-residential property in an ideal, quaint, naturally picturesque destination of one’s choice. Whether it is for staying for interim periods or renting out to seasonal tourists, a holiday home on an island cut off from the mainland can be an inconvenient investment due to connectivity and access issues. It is proper to study the rail-road-air connectivity and distance aspects as much as the footfall of tourists around the year. 

For instance, if a hill station is accessible or attractive for stay only during two months a year, then one may have to consider the property a dead one for the rest of the year. Several city dwellers prefer holidaying in destinations not too far away from the city they live in. A hundred-kilometre convenient drive in and drive out sounds feasible over weekends. In India, 7 regions namely Goa, Alibaug, Lonavala, Shimla – Kasauli, Rishikesh – Dehradun, Ooty – Coonoor and Malnad belt are among the preferred regions for vacation homes. 

Usage and Maintenance of the property

While it is always easier to buy, the real work lies in maintenance. A holiday home investment secured for one’s own leisure and recreation can be utilised only for a limited timeframe. A smart investor would upkeep the property to ensure a consistent rental income and return on investment is generated. When not occupied, the vacation home can be rented out, either through tie-ups with tourist operators or online platforms that facilitate booking of private properties. A second party can ensure routine cleaning and maintenance of the holiday home or a local guardian or caretaker can be hired to do the same. 

Rental Management of a vacation home

Just like any business needs an operations, logistics and maintenance system, a vacation property that generates a source of income deserves the same professional approach and treatment. A property management or rental management company outsourced with the job will ensure that your vacation home offers the best and premium class service to its stayers. At the same time, help in preserving the life of your property. Regular cleaning, routine repairs and timely additions are an important aspect of running a sound holiday home. 

Return on Investments

Vacation homes are a solid way of diversifying one’s investment portfolio. Not only is there a surety of a continuing rental income but also the assurance of eventual capital appreciation over a period. While for a long time, the core asset class of commercial property has been the first option for buyers, followed by the development asset class of residential property, holiday home investment is an emerging and experimental class of asset making its way into the Indian market with a gross yield of 7 to 9 per cent. Investment in Vacation rental homes offer a return on investment in the range of 10% - 14% per annum. Between 2020 -2023, capital values of villas have witnessed growth in the range of 5% - 7% per annum; however, we expect this to stabilise in the coming 1 - 3 years horizon and the growth in Capital Values is likely to be between 3% - 5% per annum.

Exit Strategy

Apart from thoroughly performing an in-depth market analysis, understanding the legal and regulatory requirements related to owning and managing a vacation rental home, it is important to put together a sound exit strategy at the beginning of your buying decision. Factors such as reputation of plotted developer, accessibility, operations, maintenance etc may play a part here. One needs to introspect, reflect, and examine whether this is a suitable long-term investment plan or a short term one, and accordingly frame a sell-out strategy as per need. Consider checking if the developer has a buy-back policy in place. 

Conclusion

Like everything that has its own rhythm and pace, vacation rental home as an asset class has its own dependable pros and retractable cons. A detailed research report developed by Meraqi advisors as a handbook for investing in vacation homes or holiday homes can be a great starting point to the big plunge. The Indian real estate market boasts of a privileged presence of both HNIs and UHNIs who seek vacation rental homes as a lucrative and rising asset class already. The global pandemic has altered the way people perceive home ownership. Vacation homes, also being promisingly invested into by NRIs and those looking for a balance between concrete and landscape living, are turning into an emotional plus financial investment that may be an eventual win for both buyers, sellers, and occupiers. Not to forget, a game changer in how the hospitality sector evolves in the years to come.