A second home is great to spend your free time and vacations in. But does investing in a vacation home or chalet pay off financially?

Promising returns

Some 75% of people who buy a vacation home consider it an investment. This is shown by figures from Second Home. Their savings in the bank do not yield anything and by renting out their second home, they can achieve a nice return. So today we see many advertisements for vacation homes that promise a nice return of 4% or sometimes up to 8% or 10%. This sounds great but it is important that you inform yourself well about this.

If an attractive return is promised, it is good to be critical:

Is the return gross or net? Are there additional costs, for example for maintenance and administration?

To achieve a return higher than 4%, you need to be able to rent out your vacation home about 65% of the time. This means that you yourself can use your house “only” 35% of the time and have to rent it out practically all summer and school vacations, because those are the peak periods. Ask yourself the question: do you really want this? Because then you won’t be able to enjoy your vacation home yourself at the times you want it.

Tax on rental income

The tax authorities consider a second home to be equity. This means it falls into box 3 of your tax return. You have to pay capital gains tax on the WOZ value of the house. The amount of this levy depends on your assets:

• There is an exemption of €50,000 per person (€100,000 per couple).
• Above this exemption, you pay:
• Up to 100,000 €: levy of 0.59%.
• Between 100,000 € and 1 million €: tax of 1.4%.
• More than 1 million €: levy of 1.76%.

These rates apply for 2021 and are adjusted annually. You do not have to pay taxes on the rental income from your vacation home. If you incur expenses to rent out or maintain the house, you may not deduct them from your taxes.

Borrowing money for a vacation home

You can pay for a second home with your own money or you can take out a loan. Banks will almost never finance the entire amount of a vacation home. Generally, they give a mortgage of 50% to 70% of the value of the home. You have to pay the other part yourself. The mortgage interest rate is usually slightly higher than the mortgage on the house you live in. You cannot deduct the mortgage interest from your taxes. You can only do that if you officially live in the house. You can, however, deduct the debt from your assets in Box 3 of your tax return.

Taking out a loan for a vacation home makes it less interesting financially. To achieve a net return of 4%, you often have to rent it out. If you have to pay interest for your loan in the meantime, not much remains of this return. But if you want a vacation home for your own pleasure, without making money from it, it is not unwise to take out a loan for it. Then you will enjoy the low interest rate and that does make it interesting again.

If you want to buy a vacation home, be sure to take a look at the housing offer with homes at home and abroad.