Holiday Home Investment Uk
When it comes to investing in property, several different types of asset are available to the buy-to-let investor including professional lets, family lets and short term lets. One investment opportunity that is sometimes overlooked is holiday lets. Here we will look at whether or not holiday lets are a good investment.
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- Why Holiday Lets can be a Good Investment
- Some Disadvantages to Investing in a Holiday Let
- How to Succeed with your Holiday Let
Why Holiday Lets can be a Good Investment
Holiday lets are likely to be an expanding market. Taking holidays in the UK – the staycation as it's called – seems to be rising in popularity right now. Brexit and now the Covid-19 pandemic are amongst the reasons. So there's likely to be a good demand for holiday lets in future, and some areas could even have a shortage of holiday property.
This report from The Telegraph claims Britain is set for a staycation boom!
You can make more money from a holiday let. Compared to longer-term lets holiday lets can be much more profitable. A very rough rule of thumb might be that you can charge the same for a week's holiday let when in-season as you can for a month's long-term let.
This report from Which? says that holiday lets earn on average over 10% yield, although 14% should be possible over the coming years.
Here's an example: Let's say you buy a holiday cottage for £175,000. Let on a long term let it might earn you £700 a month or £8,400 a year. That's an annual yield of 4.8%. But let's imagine that as a holiday let it earned you £700 a week for 10 weeks of the year, £600 a week for another 10 and £500 a week for a further 10 weeks. That's £18,000 a year which is equal to a 10.28% yield.
The tax advantages of holiday lets. There can be major tax benefits of holiday let properties which ordinary buy to let landlords can't obtain. These can make a huge difference to the profitability of your property.
It's essential to consult an accountant to find out exactly what tax advantages a holiday let could offer you. However, as a general guide, HMRC considers holiday lets to be a business rather than a buy to let as such. This means you may be able to claim full mortgage interest tax relief, rather than the very limited allowance that is now given to most landlords.
To qualify here your property will normally need to be a furnished holiday let (or FHL as it's known), available for letting at least 210 days a year and let for at least 105 of those.
You will generally be able to claim all the running expenses of your holiday property business including bills and maintenance costs and the replacement of domestic items.
There may also be benefits for Capital Gains Tax (CGT) and Inheritance Tax (IHT) depending on how you operate your holiday let business.
You may be eligible to pay Business Rates on your property instead of Council Tax. If your property has a rateable value under £15,000 you may be eligible for business rates relief too and even pay no rates at all.
Holiday-property has restricted tenancy rights. Holiday let tenants don't have the same occupancy rights as tenants on assured shorthold tenancies or ASTs. So there's little risk of being stuck with problem tenants who are difficult to evict. (Holiday let tenants generally pay their rent in advance too!)
You can use your holiday let yourself. Last but not least, you can also use your holiday property yourself. This is important to many holiday property investors and from a financial point of view, you could benefit to the tune of several thousand pounds a year.
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Flying Boat Cottages - Holiday Lets in Tresco
Some Disadvantages to Investing in a Holiday Let
Holiday lets may cost more to buy in the first place. Holiday properties in areas with good holiday letting potential are often more expensive to buy in the first place – partly as a result of their holiday letting potential and popularity as second home locations.
It may be more difficult to finance holiday property. Standard residential mortgages can't be used to buy a holiday let and many buy to let mortgages only permit letting on an AST. Mortgages which permit holiday lets may only be available with a lower LTV and charge a higher interest rate.
Increased wear and tear. A holiday property, because it has a different tenant every week, will probably be subject to more wear and tear than a standard let. You'll need to allow for the cost of repairs and replacements when calculating your likely returns.
Holiday properties can involve much more work. This is particularly the case if you decide to deal with letting, changeovers, cleaning and any emergencies yourself rather than using a letting agency to deal with these tasks.
Landlords pay all the utility bills. Unlike a standard residential let you, rather than the tenant, are responsible for the utility bills and Council Tax (if applicable).
Voids are likely to be higher. Holiday property letting is seasonal in most cases. You may have full occupancy in summer and during bank holidays and school holidays but a property could be empty at other times, especially in the winter.
This report from a holiday letting expert says it is reasonable to expect a holiday property to let for between 20-40 weeks a year.
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A Stone Holiday Cottage in Ayrshire
How to Succeed with your Holiday Let
It's important to remember that not all property investments have the potential to be used as a holiday property. Here are some points to bear in mind when making a holiday property investment:
Location, location, location. Location is important with every property investment. But with a holiday property, you'll need to make sure there's good demand for holiday lets in that location.
Letting agency Sykes Cottages say that The Best Places to Buy a Holiday Home in the UK include the Lake District, Cornwall, Yorkshire, the Peak District, Devon, Dorset, Norfolk, the Cotswolds, Wales and the Isle of Wight.
Don't forget that some cities are popular for holiday lets too.
Choose the right type of property. Think about what types of property will work best as a holiday let. For example, very small or very large properties can have quite a limited market. Two or three bedroomed properties are often best as a good holiday let investment. They can be let to couples, families, families sharing or groups of friends.
Also, look at properties with the type of amenities that appeal as a holiday let. For example sea views, country views, closeness to local pubs and shops, a garden and private parking all help to attract lets. Unusual or quirky properties can be good too.
Check that there are no restrictive covenants or planning restrictions. Before buying a holiday let make sure it is possible to let it out short term. Some properties, such as those in apartment blocks, might have restrictions banning short term lets. In some areas, you may need planning permission. National Park areas, for example, may have a local occupancy restriction that prohibits holiday lets.
Equip your holiday let to a good standard. Making sure your property is well furnished and well equipped can get you more lets, increase the rent level and increase the returns. Holiday let tenants expect a similar or better standard than their own home. Popular features include open fires, a well-equipped kitchen with dishwasher etc., fast WiFi and cable TV and even luxury features such as a hot tub.
Market your holiday let professionally. Good marketing is probably the key to making a holiday property into a good investment. There are several ways to market your holiday property:
Firstly, you could sign your holiday property up with a holiday property letting company. They'll take care of everything including marketing, finding customers, doing all the admin. and maybe even handling changeovers too in return for a regular fee or commission on lettings. It's probably the most expensive way of letting your holiday property however.
Secondly, you could list your holiday property on an accommodation booking site, For example Airbnb.com or Booking.com. There are also some booking sites specially for holiday property such as HolidayLettings.co.uk or HomeAway.co.uk. This will generally cost less than using a full service letting company but you will need to take care of admin. and changeovers yourself.
The final option is to market and run your holiday let fully hands-on yourself. You might do this by setting up your own website and using online and offline advertising. This will involve more work but, ultimately, it will probably generate the highest return from your holiday let.
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Source: https://www.propertyinvestmentsuk.co.uk/holiday-lets/
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