Pitfalls that can turn a holiday home dream into a nightmare
Faulty septic tanks, unsafe drinking water and right of way issues could see your rural retreat become a real financial headache
Owning an Irish holiday home can seem tempting this time of year - as many of us escape to our rural retreats. Yet a holiday home in the country (or elsewhere) can turn into a major financial headache - even if it seems like a cheap buy. No matter how great the sea view or how warm your childhood memories are of a place, don't ignore these rules of thumb if buying a holiday home.
Don't buy cheap
Average property values in some parts of Ireland can be as low as €60,000 but a cheap price tag shouldn't be your only reason to buy a property.
"Cheap isn't always a good thing," said Mura Browne, a solicitor with Browne & Co Solicitors in Letterkenny. "Anything going cheap is usually going cheap for a reason. Sometimes, there's a problem with the property, such as with a right of way, boundaries, or the property's septic tank."
Beware right of way
A right of way is a right to access a piece of land over a lane or other piece of ground owned by someone else. Should you be considering buying a holiday home which is up a small country lane or roadway, find out if it's a public route maintained by the local authority - or it's private land owned by someone else.
Should it be private land, make sure you have a right of way to cross that lane or roadway so that you can access your property - particularly if it's the only way to access the home. Otherwise, you could face expensive court action to establish a right of way to your property.
Issues around rights of way can be complex so should there be a potential issue around right of way to a property, get legal advice before you buy.
Bear in mind that you may need to register the right of way with the Property Registration Authority and you could run into problems doing so. "The person who owns the property or land [which you require right of way over] may not want to register the right of way," said Browne, "They might be awkward about it - or they may look for money from you."
It can sometimes arise that essential services for a property come through a neighbour's home - particularly in rural areas or if a property is landlocked.
For example, a septic tank servicing a home could be on a neighbour's property or the water supply for a property could be coming from a neighbour. Make sure there will be no issues getting such essential services to your holiday home. Otherwise you could find it hard to enjoy the property - and to sell it in the future.
Check the water
Should you buy a house in a remote rural spot, its only source of water could be the property's private well. Don't assume it is up to scratch and the water is safe to drink. Buy a property with a dodgy well and it could cost several thousand euro or more to fix it - if you can.
If you can't fix the problems and the well is the only source of water, not only will you not be able to drink the water, you'll also run into enormous difficulties should you try to sell. Another problem you could encounter is your well running dry - and this will be expensive to fix. So be sure to check the quantity, as well as the quality, of the water before your buy a home with a well.
Check the septic tank
Many rural properties have their own septic tanks. All septic tanks must now be registered with the local authority for their area and can be inspected.
Should an inspection find that the septic tank for your holiday home is faulty, you will either need to upgrade the tank - or carry out whatever remediation works are deemed necessary by your local authority.
The bill could easily run into the thousands. Should you need to replace your tank, the bill could run to several thousand or more.
You may also need to put in a percolation area and you must have a suitable site if this is the case.
Before buying a house with a septic tank, have it inspected by a qualified person. Ask the seller for installation and maintenance records for the system.
Get a copy of its certificate of registration and make sure it has met planning rules.
Only take on a second mortgage to buy a holiday home if you are sure that you can afford the repayments well into the future."Do not rely on rent from the property to pay the mortgage," said Jim Stafford, a personal insolvency practitioner with Friel Stafford. Demand is likely to be strongest during the summer and you may struggle to let out the home at other times.
Stafford has advised clients who got into financial difficulties as a result of buying holiday homes overseas. "One of the reasons some of our clients got into financial difficulty was the second mortgage they took out on their family home to buy foreign property," said Stafford. Should your financial circumstances take a turn for the worse after taking out a second mortgage, you could struggle with the repayments. Furthermore, any plunge in property values since you originally bought the holiday home means you might not have the option to sell the property. "Before buying a holiday home, ask yourself if you could afford a 50pc collapse in the property value," said Stafford. "Such price drops can happen."
Pay your tax
You face a number of tax bills if you own an Irish holiday home, including local property tax. You must declare any rental income earned to the Revenue Commissioners and you must typically also pay tax on that income.
You could face tough penalties should you fail to pay the right tax.
"In certain cases, care needs to be taken to determine if the rent is more akin to a service (such as a bed and breakfast) and therefore potentially liable to VAT," said Paul Dillon, tax partner with Duignan Carthy O'Neill.
Do your homework
"Don't buy somewhere on a whim," said Browne. "Sometimes people are blinded by a beautiful summer's day. Go back to the place when the weather's not so great. If it's an area you don't know, visit the place a few times so you can get a feel for the place. Speak to a few locals and find out what kind of activities are in the area."
Be careful about buying a remote holiday home - isolated properties can seem like the ideal place to escape the rat race but they can be hugely inconvenient places to live.
Check if the area is prone to flooding - and avoid buying there if this is the case.
Before you buy any property, be sure to visit it and to get good legal advice. Hire a surveyor to check out the property for any structural defects - and get a suitable professional to check the boundaries of the property. "Some people assume the hedge is the boundary to a property - but the boundary could be further back than that," said Browne. "Should a neighbour dispute the boundary, you could have legal letters flying over the tiniest bit of land."
Buy a holiday home which is likely to appeal to future buyers. Don't pay too high a price for the home - and avoid buying at the peak of the market as you may not be able to secure that price again should you decide to sell in a few years.
"People often outgrow their holiday homes - particularly when their children grow up and the property stops being used for the summer," said Browne.
"Some people have taken massive hits on Irish holiday homes. They may have spent €300,000 when buying something originally and now be selling it for €90,000. Here in Donegal, there are a huge amount of holiday homes - but only some are selling." As always, buyer beware.
Sunday Indo Business