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If you could be either a yacht or a penthouse…welcome to Opportunity Cost economics

If you could be either a yacht or a penthouse…welcome to Opportunity Cost economics

Are you ready for a lesson in Opportunity Cost economics?

“No, I’d rather be drinking rosé in place Garibaldi.”

Well, I urge you to read on. Because I have used this key economic concept to squeeze thousands more Euros out of my holiday rental apartment in Nice. Each and every year. That’s a lot of glasses of rosé.

Opportunity Cost is the value of the alternative option forgone. For example, imagine you only had €2 in your pocket. With that shiny coin you could either purchase a glass of rosé, or a quiche Lorraine from the boulangerie. (With just the €2, you can’t afford both.)

Therefore the Opportunity Cost of drinking a glass of rosé is the quiche Lorraine you could have eaten instead. Easy so far? Now comes the lucrative bit.

As a Nice property owner you hope to holiday in your apartment for a week this August. Who wouldn’t? But it’ll cost you. How much? The Opportunity Cost of using your own apartment this August is the amount you could have rented it for.

That sunny week in Nice would therefore cost you €1,000, or whatever your weekly rental charge is. That’s what you would have had in the bank if you’d have stayed at home.

How has this miserly economic theory made me more cash?

Well, I don’t take it to extremes. There’s no point in having a property in Nice if you can’t use it. But in my rental calendar I’ve circled every economically sensitive date (Cannes Film Festival, ATP Tennis Masters in Monaco, the entire month of August) and made sure I’m not there at the same time.

Instead I visit Nice’s markets in April, then sit on its beaches in October, when holiday rental bookings are far fewer. It simply makes more economic sense. And makes me more money.

Whatever you do, don’t start gifting weeks in your apartment to family and friends. Unless you’re exceptionally generous. A fellow Nice property owner offers her aunt two weeks in her apartment each summer. Kind, but at an Opportunity Cost of €3,000 every year, or €30,000 over the last decade. Talk about generous.

Now that I’ve explained the concept to this property owner, she spends the money on rosé instead. Around 1,500 glasses each year to be exact.

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