Thinking about a holiday home as an investment? Here are ten things to consider

A second home is more than just somewhere to spend the occasional week or weekend. Taking the right steps to prepare means it can also be a wise investment. Discover the most important things to consider when buying a second home in Belgium with peace of mind.

Being well prepared will help you avoid a large number of pitfalls and turn a holiday home into a worthwhile investment. However, this requires realistic expectations and some knowledge of the rules. We've listed ten fundamental things you should consider below.

1. Location, location, location

This adage applies to holiday homes, too. The Belgian coast and the Ardennes are popular with tourists, yet a city or picturesque village may be more up your street. It's important that the location is attractive to prospective guests and practical for you. Accessibility (such as being close to motorways or public transport), local amenities (restaurants, shops, bakeries) and seasonality are crucial factors. Seaside towns and ski resorts experience busy periods during peak season and quiet winters, whereas cities or areas full of forest can attract visitors all year round.

Also read: What to look out for when buying a home

2. Purchase costs

In addition to the purchase price, you also need to bear in mind high one-off costs such as registration fees (12% for a second home in Flanders; 12.5% in Wallonia and the Brussels-Capital Region), notary fees and deed fees. Banks also usually require you to finance a large part of the purchase yourself, as you often have to have at least a 20% deposit when buying a second home. You also need to keep renovation and/or furnishing costs in mind, too.

Also read: Borrowing for a second home: what are your options?

3. Permits and municipal rules

Check whether the property can actually be used as a holiday home. Although a purchase contract will state that you'll own the property, it doesn't mean that you'll be able to rent it out to tourists straight away. As an example, you can't simply convert an ordinary home into tourist accommodation if it conflicts with rules set out by the municipality.

In certain cities, frequent holiday lets may even be regarded as a change of use that requires a separate permit. You should therefore check with the municipality to see whether there are any restrictions or permits are required. Some municipalities in Wallonia, for instance, only allow a limited number of holiday homes or set rules for short-term rentals.

Even if you only rent the property out occasionally, you will not be exempt from the legal obligations. In Flanders, the Accommodation Decree applies as soon as you offer your property as accommodation to the public – whether that's once a year or on a continual basis. You must meet basic standards (comfort, hygiene, ventilation, fire safety, etc.) and register your accommodation with official bodies. The same principle applies in Wallonia, where you are also subject to rules and must register your property. Brussels also has its own decree for tourist accommodation, which is similar to the rules in force in Flanders and Wallonia.

4. Insurance and shared ownership

If the property is part of a block of flats, be sure to check the shared ownership rules as some syndicates prohibit or restrict Airbnb and holiday rentals in their buildings. Check whether the communal building insurance also covers damage caused by guests.

Taking out fire insurance is a must, however, as it is a legal requirement in Flanders and Wallonia. Toerisme Vlaanderen also requires you to take out civil liability insurance in Flanders, while you should also consider taking out contents insurance to protect your furniture and appliances against theft or vandalism. This type of insurance is not mandatory, but it is recommended if you have a holiday home that's beautifully furnished.

5. Handle everything yourself, or outsource?

Think about how you'll handle the rental side of things in advance. If you decide you want to handle marketing, bookings, handing over keys, cleaning and being the contact point for your guests, you should be aware that this involves a lot of admin and takes up a lot of time.

Some owners hire a local rental agency or property manager to handle the letting process from start to finish for a fee. While this eats into your income, it does take a lot of the stress off your shoulders.

Using rental platforms simplifies the process of finding prospective holidaymakers, but they come with their own terms and fees, too. You should also bear in mind that some cities or municipalities apply specific restrictions to letting through such platforms.

6. Local taxes, property tax, and tax on second homes

In addition to registering your property with the regional authorities, you must also think about local formalities as soon as you start welcoming guests. Many cities and municipalities impose a tourist tax (a small charge per night or per stay) that you are required to collect and pass on as the landlord.

You should also remember that you have to pay annual property tax and often a tax on second homes imposed by the municipality. The municipal tax on second homes varies depending on the municipality, but can amount to hundreds or even thousands of euros a year.

7. Protect your own living environment

A holiday home can inconvenience local residents due to the number of visitors, noise or parking issues, to name but a few. Before making a purchase, it's therefore a good idea to find out what your neighbours think about holiday rentals. After all, the last thing you want is conflict with your neighbours or complaints. Be clear with your guests, too, and draw up a set of house rules.

Finally, always ask your guests for a deposit (either directly or through the platform) to cover any potential damage. While most holidaymakers will take good care of your property, it's wise to make sure you're covered from a financial perspective in case something gets damaged or goes missing.

8. Rental income and tax

Renting out a holiday home can have tax implications that may seem rather complex at first. It all comes down to the nature of the income – does it count as income from property, from movable assets, as miscellaneous or as professional income?

> Income from property: rental of the property

Income from renting out a holiday home isn't usually taxed on the actual rental income as part of your personal income tax. When you rent out a property to individuals for private use, the tax authorities use the cadastral income (CI) as the benchmark. Cadastral income is a fictitious income assigned to the property. Specifically, this means you include the non-indexed cadastral income for your second home in your tax declaration, and your taxable income from property is calculated based on this amount through indexation and increasing it by 40%. This results in a figure that is typically much lower than the rent you actually receive.

> Income from movable assets: rental of the contents

If you rent out the holiday home furnished, the tax authorities will consider part of the rent received as income from movable assets, and the furniture and household items in particular. You must therefore allocate a percentage of the rent to the rental of movable assets and declare this amount separately from the income from property.

A flat-rate formula is often used here, with 60% of the total rent deemed income from property and 40% considered to be income from movable assets, unless you demonstrate you have used a different ratio. You are required to pay 30% withholding tax on the part deemed income from movable assets. Fortunately, however, the law allows for a flat-rate deduction of 50% on the income from movable assets before applying the 30% withholding tax, meaning you effectively only pay 15% tax on the total income from movable assets.

> Additional services: miscellaneous income

If you offer supplementary services in addition to renting out your property, such as breakfast, regular cleaning during your guests' stay, bicycle hire, guided tours and so on, the tax authorities will regard the total income (rent and services) as professional income in a self-employed activity. There is, however, greater flexibility for small-scale landlords who only provide supplementary services occasionally or as a one-off. In such cases, the tax authorities accept that the income from such services is taxed as "miscellaneous income" at 33% after the deduction of proven expenses.

Professional income: when are you considered a professional?

The more often you rent your property out, the more likely it is that the tax authorities will view your activity as a source of professional income rather than private rental income. The idea of professional income comes into the equation if you rent out your holiday home frequently, regularly, with commercial intent and in an organisedmanner. The law does not set out any hard-and-fast criteria in this regard, and the facts are assessed on a case-by-case basis. One indication would be whether you clearly operate your second home as a company (whether you have a separate website, advertise, have several holiday homes, offer hotel-like services and so on).

If the income is deemed to be professional income, your entire rental income will be classified as professional income and no longer separated into income from property, income from movable assets or miscellaneous income. The total amount will then be combined with any other sources of professional income and taxed at the progressive rates. On the other hand, this means you can also deduct all expenses incurred related to renting your property out. Should it become a source of professional income in its entirety, however, social security contributions will likely be due and you will have to meet administrative obligations (such as registering as a self-employed individual with a company number, submitting regular VAT returns if you are obliged to pay VAT, and more).

9. VAT obligation for tourist accommodation

In Belgium, renting out property is an activity considered exempt from VAT in principle. If you rent out an apartment to a family for an extended period of time, for example, VAT will not be due.

However, if you offer furnished accommodation to guests for a stay of less than three months and you provide at least one of three specific services – welcome guests in person, provide bed linen and towels, or provide breakfast every day, this is deemed an activity subject to VAT in the eyes of the law.

If you rent out your holiday home for short stays (per week or a weekend) and you (or someone on your behalf) welcome your guests in person, provide linen and towels and/or provide breakfast, you will generally be required to charge VAT on the rental.

In such a case, you must register to pay VAT and submit regular VAT returns. The good news here is that accommodation services come under the lower VAT rate of 6%, which applies to the rental of furnished rooms or accommodation, including breakfast. Other additional services are subject to different rates. Bicycle hire, for example, is subject to 21% VAT, which means you'll need to keep certain services separate for accounting purposes if you provide them.

10. Second homes also come with significant risks

• The property may be unoccupied and returns vary. A holiday home isn't an automatic gold mine that pays off all year round. After all, you run the risk of your property being unoccupied during off-peak tourist seasons. You should bear this in mind in your financial planning, as you may need to cope without rental income for a few months while your fixed costs still need to be paid.
• Damage and wear and tear. Things can always go wrong when people are on holiday. Guests may accidentally cause damage, ranging from breaking a glass or spilling wine on the sofa to more serious accidents such as fire or water damage. Even when items are used with care, they will wear quicker. You can claim damages through the deposit if it's clear that your guests are at fault, but any normal wear and tear is your responsibility.
• Greater admin and complex rules. As you may have noticed, there's quite a lot of paperwork and regulation involved. Not everyone wants to fill in forms every quarter or keep all their receipts for tax returns. And if you run several properties, you'll have double – or even triple – the administrative workload. The legislation is also evolving, and the rules that apply today may be different in a few years' time.
• Legal and social uncertainties. The popularity of platforms such as Airbnb also comes with a downside. Some cities are feeling pressure to impose stricter rules on holiday rentals due to their impact on the housing market. It isn't hard to imagine that stricter quotas may be introduced in the future, or that temporary rentals may be banned in certain neighbourhoods to prevent disturbances.
• The property may fluctuate in value. Finally, you need to consider the investment risk itself, as property prices can rise and fall. While you may be hoping for a substantial profit in the long term, there's no guarantee that this trend will continue.

Also read: Ten tips for the novice property investor

Buying and renting out a second home can be a great investment that provides a wonderful spot to go on holiday as well as a financial return. Belgium has much to offer anyone dreaming of their own retreat from their daily routine. By choosing the right location and adopting a thoughtful approach, you can transform your holiday home into a valuable asset that pays for itself.

However, you should make sure you're aware of the rules and obligations. Be sure to consult an accountant, notary and/or tax expert for advice to avoid a whole host of pitfalls.

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