Buying a Villa That's Already a Holiday Rental: Due Diligence First

A villa that already has years of reviews, repeat guests and a full calendar for next winter looks like the easy route into holiday rental in Grenada. Sometimes it is. A going concern can save a year or more of building reputation, and the seller's booking records give a far better basis for a projection than any estimate for an untested property.

But the figures a seller presents and the business you inherit are not always the same thing. Gross bookings can be shown without the costs that produced them; tax obligations may be in arrears; furniture and air-conditioners may be near the end of their lives; the reviews may belong to a management company's account rather than the property; and staff may have expectations that pass to the new owner. This article sets out what to request, what to check and which professionals to involve before you sign.

Records to request from the seller

Ask for these early, ideally as a condition of any offer, and have an accountant review them rather than reading them yourself late at night.

• Booking platform reports for at least the last two or three full years, exported directly from the platforms, showing each stay, gross amount and fees.
• Bank statements showing rental income actually received, to reconcile with the platform reports.
• A full list of operating costs: management, cleaning, utilities, pool, garden, insurance, repairs, property tax and accounting.
• Tax filings for the rental income and, where relevant, VAT returns, with confirmation from the seller that taxes are up to date.
• Evidence of registration with the Grenada Tourism Authority, if the property is registered.
• Current insurance policy and claims history, especially any hurricane or water damage claims.
• A list of future bookings, with deposits received and the terms on which they were taken.
• Copies of any management, maintenance, pool, garden or staffing agreements.

Testing the numbers

Start by reconciling the platform data with the bank statements. Gross booking values should match money received after fees and refunds; large differences need explaining. Then rebuild the profit and loss yourself, from the platform reports and actual invoices, rather than accepting a summary prepared for the sale. Look for costs that are missing because the seller did the work personally, such as managing bookings, meeting guests or minor repairs; you will have to pay someone for those.

Look at the pattern across years rather than one good season. Was a strong year boosted by an unusual event or a single large group booking? Did occupancy fall after a hurricane, after a change of manager, or when new competing villas opened nearby? Does income depend heavily on a handful of repeat guests who might not return under new ownership?

Finally, re-run the numbers with your own costs. If you will use a full-service manager where the seller managed personally, take the management fee out. If you plan to stay for several weeks each winter, remove those peak weeks from the income. The business you are buying is the one that will exist under your ownership, not the seller's.

The physical condition: what a survey should cover

Roof and structure. The roof, fixings, gutters and any signs of past leaks or repairs. Ask when the roof was last replaced and whether it was upgraded after Hurricane Ivan, Beryl or other storms.

Termites and timber. Termite damage to roof timbers, door frames, built-in furniture and decking can be extensive and hidden. A pest inspection is worth the cost.

Mechanical systems. Age and condition of each air-conditioner, water heater, pool pump and filter, cistern pump and pressure tank. Many villas sold as going concerns have several units near the end of their lives at the same time.

Water and power. Cistern condition and capacity, the NAWASA connection, electrical installation, any solar system and its paperwork, and the GRENLEC meter arrangement.

Approvals. Whether all buildings, extensions, pool and guest cottages have planning approval. Unapproved additions are common and can complicate financing, insurance and resale.

Furniture and inventory. An itemised inventory of what is included, with its condition. "Fully furnished" can mean anything from new to exhausted.

Contracts, staff and the listing itself

Holiday rentals rarely transfer as neatly as a house. Management agreements may have notice periods or fees for termination, and some managers keep the listing and its reviews when the property changes hands. Ask who owns each listing on each platform. If the reviews sit on a manager's account, they may not come with the sale; if they sit on the seller's personal account, you will need to agree how the transfer will work, if the platform allows it.

Staff are a sensitive issue. Long-serving housekeepers, gardeners and caretakers are often central to a villa's good reviews, and guests ask for them by name. Find out whether they are employed by the seller, by a management company or casually, how long they have worked there, what they are paid and whether there are obligations such as accrued holiday or severance that could pass to you. Take advice from a Grenadian attorney on employment law before completion.

Future bookings need clear treatment in the sale agreement: who holds the deposits, who honours the bookings, how payments are split for stays that straddle completion and what happens if a guest cancels. Agree it in writing, not on a handshake.

Utility accounts, internet contracts and service agreements for the pool, garden and pest control also need transferring. Ask for recent GRENLEC and NAWASA bills to confirm there are no arrears attached to the property, arrange meter readings on the completion date, and get a list of every supplier the villa relies on, with contact names, so the handover does not leave guests arriving at a house with no internet or a pool turning green.

Red flags in a going-concern sale

None of these automatically rules out a purchase, but each deserves a clear explanation and, often, a price adjustment or a specific clause in the agreement.

• Income figures supplied only as a spreadsheet summary, with no platform exports or bank statements to support them.
• Large amounts of income said to come from direct or cash bookings that cannot be verified.
• No tax returns for the rental income, or a seller who is vague about whether VAT applies.
• A sharp drop in bookings in the most recent year with no convincing reason.
• Several air-conditioners, the pool pump and the water heater all of a similar, advanced age.
• Fresh paint over isolated patches of ceiling or wall, which can hide leaks or termite damage.
• Extensions, guest cottages or a pool with no record of planning approval.
• A management company that will not confirm in writing what happens to the listing and future bookings on sale.
• Pressure to complete quickly before a promised "full season" begins, cutting short the time for proper checks.

A due diligence sequence

A typical order of work, coordinated by your attorney, looks like this. Timing varies, but do not let the excitement of a full calendar rush the checks.

1. Make an offer conditional on satisfactory financial, legal and physical due diligence, with a realistic timetable.
2. Instruct a Grenadian attorney to carry out the title search and conveyancing, check approvals and review all contracts, including any Alien Landholding Licence requirements if you are not a citizen.
3. Have an accountant review the booking data, bank statements, costs and tax compliance, and advise on the best ownership structure for you.
4. Commission a building survey and a pest inspection, and have mechanical systems checked by a technician.
5. Speak to the manager and, where appropriate, the staff, to understand how the property really operates.
6. Agree the treatment of future bookings, deposits, inventory and staff in the sale agreement.
7. Arrange commercial insurance to start on completion, and update registration and tax details into your name.

Frequently asked questions