If you're thinking of buying a holiday home abroad, you seriously should pay attention and learn from the story of Bulgaria. Bulgaria has been the newest hype word around the international property market. It has been marketed furiously as the new El Dorado for holiday homes.

 

When it comes to buying properties, abroad or at home, it's all about location location location. However, if you're a property investor, it's also about price, it's about being the first in a market, about spotting the trend changes and picking new trends before everyone else. And Bulgaria seems to have all of these. It's located in Eastern Europe, soon to join the EU. It offers something for everyone's taste, as it has nice beaches at the Black Sea and also mountains quite popular with skiers. It's also very cheap, but the prospects are there, as EU will pour money into Bulgaria into the next decade.

 

So what's wrong with Bulgaria?

 

It's been over-marketed and a lot of investors have rushed in to buy cheap and sell in couple of years for a handsome profit. In the meantime there is always the rental market. Holiday home rental market is a viable means of paying for your property or, at least, for the inherent maintenance costs. The demand for Bulgarian properties has been huge. And, in turn, this has awakened a whole generation of property developers. The result: over-development.

 

The over-supply of holiday apartments, holiday villas and other holiday homes has created a dramatic competition on the holiday home rental market, with the returns for holiday home owners plummeting. The annual rate of capital growth has also dropped from a 36% in 2005 to 13.9% in September 2006, according to Assetz Property Investment Tracker.

On the rental market, the return on investment has plummeted from 116% in 2005, to just 35% in September 2006 according to the same source. The drop in the return is also aggravated by the poor management from local agencies.

 

Should you avoid buying in Bulgaria altogether? The answer is no. But you have to take into account this worrying trend. You can still buy in Bulgaria, but do your own research. If you want to rent your holiday home, research where tourists are going. There are hotspots and there are dead spots. In the end it's all about location location location. Put yourself in the shoes of a regular tourist. Who is your targeted regular tourist anyway? Where would they go? That's where you want to buy your dream holiday home for the best rental return on your investment.

Below there is an article from thisismoney.co.uk that shows the extent of the 'holiday homes abroad' phenomenon.

(excerpt from thisismoney.co.uk)

MORE than a quarter of a million Britons own a foreign property. This number has risen by almost 50% in the past six years and continues to grow, thanks in part to the numerous television shows extolling the joys of having a holiday home.

This figure is expected to double in the next five years, according to Halifax Estate Agents. The most popular destinations for second homes abroad are Spain, France, Florida, Portugal and Italy. Others growing in popularity include Croatia, Turkey, Cyprus and Morocco, where people often expect to pick up a bargain.

But before you dive in head first, there are many issues to consider, especially if you plan on renting out the home. Although Europe has a single currency and many common laws, there are still massive differences in the tax and legal requirements when buying and renting your French castle or Spanish villa.

The key is to do your research. A good idea is to agree a loan in principle with the mortgage company for your main home to give you an idea of how much you can spend. Simon Conn, managing director of Conti Financial Services, a specialist in buying property abroad, says: 'Don't always get drawn to places on the basis of cheap flights. There's no guarantee the budget airline will always fly that route, which means rental potential will plummet.'

Because the majority of people take a mortgage secured on their UK home, the lender doesn't need a valuation on the holiday home. But Mr Conn warns: 'This is very dangerous. We constantly hear horror stories of people buying places without getting an independent valuation done and just trusting local developers. In some cases, the property has later been demolished as it breached planning rules.'

Splashing the cash

The easiest option is to raise capital on your existing UK home, providing you have enough equity built up in it. Your lender may want to revalue your home and will make a charge for this as well as charging for the further advance of money.

You will also be restricted to whatever mortgage deals your existing lender offers. However, if you do not have penalties on your existing mortgage, you could look around for a new deal and remortgage. Alternatively, you could opt for a foreign currency mortgage. A euro mortgage will normally be done with a bank or lender close to where you want to buy, though some UK banks and building societies have overseas operations. The overseas lender will do their own checks on the property to make sure the home is registered in the seller's name and that a proper legal title exists.

Euro mortgages tend to be cheaper. The interest rate for a sterling mortgage in Spain is about 6.25% compared with rates from 3.7% for a euro mortgage. The big High Street lenders Barclays, Halifax, Lloyds TSB and NatWest offer foreign currency mortgages. Whether this is right for you will depend on your personal circumstances.

Rob Clifford, at national broker MortgageForce, says: 'While a euro mortgage looks cheaper, it can be fraught with hassle as you are exposed to exchange rate movements which can make monthly costs higher than expected and make it difficult to budget. But a euro mortgage is a better option if you're renting the property out and being paid in euros, as the rental income can be offset against mortgage repayments.'

Picking up a bargain

Eastern Europe is growing in popularity with holiday makers and holiday home owners searching for a bargain. You can, for instance, pick up a two-bedroom property at a Black Sea resort for about £50,000. Properties in the mountains cost about £40,000.

A two-bedroom apartment on Croatia's Istrian Peninsula will cost you about £60,000 while a new-build villa could be £150,000 or more. But be warned that in some countries you can't buy land or property directly, so a limited company has to be set up to do this. Also, while properties are cheaper, there are risks associated.

Although tourism is growing, there is no guarantee this will continue, which affects rental potential. Eastern European countries also have less stable political climates so if a government changes and takes a dim view of foreigners buying its properties, your investment is at risk.

However, Andrew Hamilton, marketing manager at The 4Less Group, an overseas property mortgage specialist, says: 'The Bulgarian market is becoming increasingly more stable as they are set to join the EU in early 2007. Buyers can find a two-bedroom apartment for as little as £10,000 and the appeal of buying is likely to grow in the future.'

He adds: 'British buyers are becoming more adventurous and long-haul destinations such as Florida, South Africa, Canada, New Zealand and Australia form the next tier of our inquiries.'

"A place in the sun live" show was a busy beehive mainly populated by property developers, trying to sell that magic holiday home in the sun that every brit dreams about. Among the popular destinations, the usual suspects France, Spain, Italy, but also some new contenders that are already proving very popular with holiday home buyers. Bulgaria was one of the star of the show, Turkey, Cape Verde, Malta and Cyprus following closely. It's interesting to see how holiday home buyers keep searching ever more distant shores as the traditional destinations become overcrowded and overpriced.

One problem with the holiday homes on sale is generally the fact that they look like huge depersonalised farms, all the houses in the complex looking the same. This lack of personality can be very off putting for buyers that actually want to live in their holiday homes, personality being a very important item on the shopping list. These holiday homes are more appealing to investors, people that buy properties in the sun with the idea of renting them out to holidaymakers, letting them long term or just waiting for their value to go up.

And speaking of letting holiday homes, a very popular seminar during the exhibition was "Hot tips on letting your dream holiday home". The seminar room was absolutely packed with people, while others were left at the door as the room couldn't accommodate everyone. Many people were taking notes and many people were actually owners of properties with a genuine interest in letting their properties in the sun.

Since the seminar was conducted by a web based advertising company, the main tips revolved around advertising online, which tends to be the main source of bookings anyway these days. It is becoming increasingly easy to advertise your holiday home online and just handle the bookings yourself. However, there are some local issues to be considered, like cleaning the house, checking it for damages, general maintenance (e.g. a swimming pool) and so on. In the end, it's all about having the required entrepreneurial skills required to transform your dream holiday home into an income generating business.

"A place in the sun Live" exhibition is under way this weekend, starting today. It takes place at ExCeL London and it's supposed to be the live version of the popular Channel 4's A Place in the Sun. For those of you not familiar with the it, A Place in the Sun is a tv show following experiences of people looking to buy holiday homes abroad.

 

Some highlights of the exhibition, as promised by the organisers

• Discover the world’s best overseas properties for sale
• Find trusted information, guidance and advice on every aspect of buying your dream home abroad
• Learn more about the way of life in your dream destination
• Enjoy a fantastic day out in London!

 

Several interesting seminars will be running in two exhibition theatres, among the favourites being

• Financing your dream home
• Setting up a business abroad
• Buying a property in France
• Buying a property in Turkey
• Buying a property in Spain
• Hot tips for letting property

The latter being interesting topic as more and more people want to rent their holiday homes during the time they are not in and help pay off the mortgage or make a profit. Renting can be especially daunting if you don't have the experience to work with customers in the hospitality industry. As people choose a DIY approach to rent out their holiday villa, cottage or self-catering flat, these tips for letting and making your customers happy will come handy.