Help with parents, and your thoughts?

chrislee2810

My 55 year old mother has just phoned me reference a advert in the Times from Devon Hills. They are advertising a guarenteed return of 8% for two years on a holiday home to the Value of £89995. My initial thoughts were what happens after 2 years. On speaking to the park, they have said that they often make more than this, not sure how true this is. I am aware that they are a depreciating asset but can this be offset against my taxable earnings? Our plan was to purchase something like this with my parents who are based in Canada and they could use it while in the UK and we can sublet it out for the remaining weeks. Do my figures add up: if we sublet it out for 40 weeks of the year, which should generate £8100 per year, then the lodge would be paid for in 10 years, then sublet it for another 5 years which would generate £40500, on doing my research I should be able to sell it on for £50k?

I have researched the company "the Haulfryn group" and they seem a legit company and they have been trading for 80 years. Has anyone had any dealings with them and what are your thoughts on the opportunity?

Mojisola

chrislee2810 wrote: »

Do my figures add up: if we sublet it out for 40 weeks of the year, which should generate £8100 per year, then the lodge would be paid for in 10 years, then sublet it for another 5 years which would generate £40500, on doing my research I should be able to sell it on for £50k?

There are usually rules on sites about the quality of homes. Don't expect to be able to let it out for 10 years, let alone 15.

DiamondLil

There will be far more knowledgeable people than I along soon, but my first thought is how do you guarantee tenants for 40 weeks per year, every year ?

Mojisola

Do some websearches - eg.
http://forum.holidaywatchdog.com/investing-in-a-static-caravan-and-renting-it-out-t115097.html

ctdctd

Can they afford to lose the capital invested ?

If yes, they might get a place to stay in the UK and some income.

If no, in my opinion, don't take the risk.

theoretica

chrislee2810 wrote: »

My 55 year old mother has just phoned me reference a advert in the Times from Devon Hills. They are advertising a guarenteed return of 8% for two years on a holiday home to the Value of £89995. My initial thoughts were what happens after 2 years. On speaking to the park, they have said that they often make more than this, not sure how true this is. I am aware that they are a depreciating asset but can this be offset against my taxable earnings? Our plan was to purchase something like this with my parents who are based in Canada and they could use it while in the UK and we can sublet it out for the remaining weeks. Do my figures add up: if we sublet it out for 40 weeks of the year, which should generate £8100 per year, then the lodge would be paid for in 10 years, then sublet it for another 5 years which would generate £40500, on doing my research I should be able to sell it on for £50k?

Your figures don't add up for me - they guarantee 8% a year so you are calculating on 9% for 3/4 of the year. A thing like this will have a strong seasonal variation too - will your parents only be using it in the unpopular times of year? What about maintenance and charges?

chrislee2810

Thanks for all your information. My parents can not really afford to lose their capital but they also can not afford to buy a property in the area. I have just phoned the park as I wanted clarity on your questions. They are saying that they have a 12 month season and they do infact have a huge variation between peak and off peak, during the summer they let out for up to £1400 per week and can go as low as £600 off peak. They charge 40% for cleaning and marketing and there fees are £5808 per year. I asked the park about the possibility of doing the same with a caravan, this was not a option as they do not offer any sort of return. You are right that they can not say that they will rent it out for 40 weeks, but by my calculations I should not have to let it out for as many weeks as I thought. Apparently after 7 years they look at the condition of the lodge before allowing it to stay on sublet.

My biggest concern is that they only come with a 20 year licence which is extended annually after the expiry date. I have also asked the salesman to send me some sort of proof of similar lodges, they are going to email it over to me. I will let you know how it stacks up. I am thinking that we should not go with this, but my mother is seeing it as a very viable option.

Linton

Seems a really bad idea to me....

1) How do you know the chalet is worth £90K? Could you sell it for that? What would happen if you needed the money back?

2) It sounds like you wont own the chalet, but rather have a long term let (is that the 20 years?). Is that true? If so what happens if the company goes bust?

3) You say they review the condition of the chalet after 7 years. What happens if they dont like it? You would only have got a bit over half the cost price back in rents. Less after tax and discounting for the return you could have got from a different investment.

4) What happens if the company manage the site badly or the market changes, both leading to a reduction in income? Can you do anything about it? Presumably any resale value would drop significantly.

5) You say that your parents cant afford to lose their capital. But they are effectively losing it in that they cant easily get it back when they may want to. Furthermore any one-off investment is highly risky. They would be much better advised to split it across multiple investments. And to invest in things that can easily be sold if needs be.

theoretica

If it is that good a deal why aren't the company keeping it for themselves, or successfully selling it for more?

SeniorSam

Would they guarantee the 8% return and then return of the investment. I doubt it. Also, any business can faulter and if it does then all may be lost. Ideas that sound too good to be true, often are. Don't take the risk.

Sam