IF YOU have an overseas holiday home the chances are you’ve listened to lots of friends dropping heavy hints about how they haven’t yet booked anything for next summer and – sigh – they’ve always dreamt of exploring that part of the country with the children. Some may be brazen enough to ask bluntly if they could borrow it for a family holiday when you’re not using it. And you may be glad to oblige; it’s very satisfying to dispense largesse.

But if you’ve invested with a view to generating a rental income, or even if you rely on rent just to cover the property’s outgoings, it’s costly to give away free weeks, especially in the peak season. The peak occupancy weeks– July and August in the Mediterranean – can command rents of up to 30 per cent more than in June and September, and 50 per cent more than in April or November, according to Stuart Law, of the property investment adviser Assetz.

He points out also that occupancy rates have fallen in recent years because of increasing supply, so investors need to take advantage of the most popular period. He says: “It used to be quite easy to get 16 weeks of occupancy in the South of France, but now you could well find you’re renting out less than ten weeks a year unless you have a really good letting agent. For decent properties in a good location, the right agent should get 16 weeks in France and 20 or 22 weeks in Spain.”

Ray Williams, a retired businessman, took a hard-nosed view in 2001 when he and his wife bought into a high-quality resort in Orlando, Florida, as a rental investment. He simply decided not to mention it to his friends at all. “We already had an apartment in Spain which is used by all the family,” he says. “This property was different – we viewed it as a business investment. We took the view that family and friends wouldn’t tell us their personal investment portfolios, and that’s what this was, so we didn’t tell anyone beyond our closest family.”

Williams had his fingers burnt nonetheless. The family bought a four-bedroom townhouse off-plan for £116,000, intending to capitalise on Florida’s steadily rising property market, and to cover mortgage and running costs with the rental income – but they were caught out on both fronts. For a start, they discovered that running costs are high in Florida, in this case about £9,000 a year. The property was let through a seven-month leaseback scheme running from April to November, paying $1,750 (£894) a month, and was also commercially let over Christmas – but the Williamses struggled to cover their costs through rental income alone.

“Costs are going up all the time, but rental income does not cover the increases,” says Williams gloomily. “And rental competition is very stiff. If you break even you’re lucky, and without capital appreciation you’re in trouble.”

Moreover, the expected capital appreciation failed to materialise because the dollar subsequently plummeted in value against sterling. The family are now bailing out, having just about broken even after selling costs.

What has Williams learnt? “I would stay in the eurozone for a start, and I’d avoid hidden charges such as resort fees,” he says. “I would also discount the agents’ and developers’ figures for occupancy rates, rental returns and growth rates by about 30 per cent. And I’d think more carefully about how long I could afford to fund an investment before I was forced to sell.” www.assetz.co.uk , 0845 4007000

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What to do if you want occasional use of your holiday investment but are still keen to generate a decent rental income:

- Do your homework. Find out beforehand all the costs likely to be associated with your property.

- An interest-only mortgage keeps monthly costs down and makes it easier to generate a rental profit.

- By borrowing most of the purchase price, you free up your capital for other projects but monthly costs will be higher.

- What’s easy to let? Look for a photogenic property within a 2½hour flight of the UK, no more than an hour from the airport and the coast.

- Beware of rental guarantees offered by developers. Check whether the promised return is net of costs or whether you’ll have to pay overheads out of it.

- If you buy in a good-quality resort, the on-site letting agency is a relatively expensive but generally hassle-free route.

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