Live and let high

How to enjoy a holiday home, but also make a healthy profit.

Extracts from an article by Parmy Olson who is the London Bureau Chief of Forbes Magazine.

Plenty of people like the idea of owning a second home in Europe for regular, cultured vacations. Many stop fantasizing once they realize they’ll also have a second mortgage on their hands. But what if that second property could make them money?

Canny investors can put a second property to work on several conditions: They’re willing to rent it out to short-term tenants for the times they aren’t there, they can afford property in the $1 to $2 million range (€730,000 to €1.5 million) and, crucially, if they buy in the right locations.

Prime real estate broker Debbie Dove says there are two European hotspots offering short-term rental yields upwards of 5%: London and Cannes. Each city requires a different approach.

Short-Term View

London is a transient rental market, with thousands of people passing through every year on business trips that can last for months on end. It’s these folks, the ones who’d rather avoid the sky-high rates offered by London’s hotels, who make good potential renters throughout the year.

There’s no peak season for short-term letting in London, so a buyer has the flexibility to decide when they want to stay for their own vacation.

Rents in Cannes soar during the Monaco Grand Prix

Ms. Dove, who has built up an £80 million fortune and a property empire that includes the former homes of Robert Louis Stevenson and Charles Dickens, says the idea of short-term buy-to-let in what real estate agents call “prime London” is already popular with Middle Eastern property buyers.

But there are caveats to London. Stamp duty on British real estate rose this April to 5% from 4%. Also, to capture juicy yields from short-term buy-to-let, buyers must fork out for the most top-notch property in some of the city’s most exclusive areas. Ms. Dove typically brokers houses in Mayfair, Hampstead and Knightsbridge, which play host to some of the most expensive properties in Europe, much less the world. “There’s no demand in London for anything that’s not top notch,” she says. “Everyone is looking for quality.”

Yields? Cannes Can

Ms. Dove’s second recommended hotspot is Cannes in Southern France. The area is a little more complicated for letting, but it offers sunny local weather for regular vacations while a stream of glittery events through the year make for a transient market that’s perfect for short-term letting.

Properties in and around Cannes can fetch eye-wateringly high rental income during the annual Cannes Film Festival, the Monaco Grand Prix and during the regular conferences like property trade fair MIPIM or MIDEM, the world’s largest music industry trade fair.

A three-bedroom apartment on the highly desirable Boulevard Croisette will set you back an initial £1.5 million, but bring in £7,000 a week in rent during the three weeks of the Cannes Film Festival, says Ms. Dove. The same goes for the Monaco Grand Prix, which takes place in Monaco but sees many of its participants stay in Cannes. The trick to achieving rental yields of 5% in Cannes is timing the letting of a property around the many events that take place nearby.

The prime period is the summer months of May, June, July and August, meaning you could leave the property vacant for your own holiday there in September, and rent it out again for the remaining months of the year at a lower rate. Winter months will achieve 50% of the very high rental rates of the summer. But even a year that’s spotty with high yields is better than letting on a 12-month contract, says Ms. Dove.

Property investors will find it almost impossible to find similarly-high yields from other parts of France where buyers might be tempted by the prospect of a cosy chateau or picturesque vineyard. The market for short-term letting of these properties is almost non-existent. “People take root in these properties,” Ms. Dove explains. “It’s a totally different market.”

Then there’s the market for ski properties, including chalets and ski apartments in places like Switzerland. The problem here is that achieving any sort of decent yield requires properties with purchase prices in the €20 million range, well beyond the budgets of most property investors. “For the short-term letting and good yields, its prime London and Cannes,” says Ms. Dove. “It’s as limited as that.”