What you need to know when investing in a coastal holiday apartment

An apartment on the coast is an attractive investment for holiday buyers. It offers an ideal lock-up-and-go lifestyle and can become a future retirement home. Given the demand for holiday rentals, it can also quite easily be put into a rental pool or listed on Airbnb which is now so popular for holiday and short-term rentals.

Property is an excellent long-term investment that will grow in value, especially coastal property in high demand areas such as the Cape. These are also popular for holiday and residential rentals, so there are plenty of reasons to invest.

A recent FNB Property Barometer points to the Cape as the strongest property market in the country with standout areas being the Atlantic Seaboard and City Bowl, both popular areas for apartment investors and rentals.

When it comes to the area to invest in, the choice is quite diverse. The Cape and its beautiful coastline is a popular choice, but prices vary considerably. While you can for example find an apartment in the R2m-R3m price range on the False Bay and Blouberg coast, you will need to pay considerably more for a good location on the Atlantic Seaboard and in the City Bowl, especially if you want to be close to the beaches or have a sea view. Beach apartments for example now sell for anything upwards of R10m-R100 million and more.

A benefit of investing in an apartment, is that these are generally in a secure complex that is managed, thus leaving you with fewer concerns around security and maintenance. With managing agents such as Coastal Property Management now also offering long and short terms rentals, you get the added benefit of being able to live anywhere in the country, or world for that matter, while your property is left in the care of capable and skilled agents who can manage it entirely.

If you are looking to invest in such an apartment, there are a number of key considerations to pay attention to:

Selecting the complex – it is important to do your homework when it comes to selecting the complex, especially if you are not based in the Cape. The best course of action, is to work with a credible real estate agent to ensure that you are not paying more than fair market value.

Check out the credentials of the complex – once you have found an apartment that you interest in, be sure to first check out the financials of the complex and research the managing agents. You will want to invest in a well-run complex with strong management and financials.

Rental prospects – if your aim is to capitalise on rental income, then you would definitely need to research the market. If the apartment is located in a high demand holiday area, then there is likely to be good potential for rentals, but many areas are now overstocked on Airbnb. You should also be aware of the seasonality of holiday rentals.

Costs and maintenance – remember that apartments come with additional costs in the form of monthly levies and from time to time, there are special levies raised for maintenance purposes. Additionally, short term rental accommodation would require additional costs for cleaning, maintenance and the like. Be sure to budget carefully and know what you are in for financially.

Tax implications – remember that rental income is taxable and you will have to declare it as part of your earnings although you are able to deduct costs. It is best to speak to a financial advisor or accountant about the tax implications. Since it is a second property, there will also be Capital Gains Tax (CGT) payable on resale.

While you would do well by investing in a holiday apartment there are always pitfalls with any investment. It is best to work with a good real estate agency, preferably someone with a track record in the area who can give you the right advice.