When you've been flicking through the newspaper over the week- end you can't have missed the pages of glossy adverts selling brand new sexy looking, state of the art holiday lodges in small managed parks set in an idyllic rural landscape. These new build developments usually have a view over a lake, a restaurant and shop on site and, are only a 10 minute drive from the beach.
To tempt buyers further the developer is offering what appears to be a very attractive guaranteed rental income deal amounting to an 8% return on the investment for the first 3 years. This is a seductive and powerful proposition. What's more the purchase of a spacious 3 bedroom lodge could come in at £150k cheaper than a similar size period holiday cottage that you've been eyeing in the same area.
Is the sales pitch too good to be true? Here is the reality check;
1. Length of lease. The purchase will be for leasehold title for your plot which could be as short as 20 years. Read the fine print, there'll be lots of it. What happens at the end of the lease? Are you obliged to buy another new lodge from the park operator? Can you sell your lodge before the end of the lease? What is the projected residual vale of your lodge if you want to break the lease? Will you have earned a payback on your dream investment ?
2. Rental income. Is the 8% guarantee net of bookings commission and cleaning costs ? What is the estimated rental income once the guarantee expires? If you don't take up the guarantee are the letting arrangements on an exclusive basis via the park operator or do you have flexibility of choosing another agent or, finding bookings yourself?
3. Brand position. What profile of holiday guests is the park operator looking to attract ? What is their pricing policy ? The ambiance of the site will be influenced by the visitors and the wrong crowd could affect your enjoyment when you stay there.
4. Management charges. These costs can often amount to £2.5k pa. What do you get for your money? Is there lodge owner representation on the site's management committee ? What controls are in place to prevent significant price hikes?
Buyer beware !