Holiday lets come in all shapes and sizes, and sometimes, the more unique your property, the more successful it...
If you’re looking to generate a second income, buying a holiday home could be the perfect investment option for you. Not only will you own a holiday cottage for yourself and your family to escape to, you could make a healthy profit by renting it out to others.
If you’ve never managed a property before, you’re probably unsure on the practicalities of it all and how much money you could earn. If you are trying to decide between short term letting and long term letting your property, read on to discover why holiday lets can be a good investment.
Holiday lets can be a great investment if you give it the right care and attention, but it is no walk in the park. There are many factors to consider when investing in a holiday let; the costs, understanding the market, rental rates and what your property is going to look like, to name just a few.
Here are some of the main reasons why holiday lets can be a good investment:
The UK has become an increasingly popular place to holiday over recent years, with the effects of Brexit and other events making it more appealing to holiday in this country. A Visit Britain study shows that during 2019, the spend on UK staycations was over £24.7 billion – an increase of almost 3% on 2018.
If the recent year-on-year increase in UK staycations wasn’t encouraging enough, 2021 is set to look even brighter for UK holiday let owners. In the aftermath of the COVID-19 pandemic, the future is somewhat uncertain for holidaymakers in terms of ever-changing restrictions and travel corridors.
This suggests that they will likely be less confident to holiday abroad, meaning that there has never been a better time to invest in a UK holiday let.
One of the benefits of short-term letting instead of long-term letting, is the potentially higher income that holiday lets can offer. Holiday lets benefit from flexible and often daily pricing, as opposed to long term lets which typically adopt strict monthly pricing strategies. If your holiday let is successful, this could result in a much higher income return than if you chose to long term let.
Another way in which holiday lets are benefitting from the COVID-19 pandemic is via tax benefits. As furnished holiday lets (FHLs) are deemed as a business, holiday let owners can be eligible for a number of tax benefits that you wouldn’t be entitled to if you decided to long-term let.
The tax relief that you can benefit from as a holiday let owner includes; Mortgage Interest tax relief, Business Rates relief, Capital Gains tax relief and more. Read our guide to government financial support for holiday let owners for more information.
Discover how to start a holiday let business for more guidance on beginning this exciting journey.
The consistency of income is one of the main differences between short-term letting and long-term letting, and can be a disadvantage to those looking to holiday let. Seasonal trends mean that less people are likely to book during the winter months, whereas long-term letting guarantees you a set amount of income each month. Holiday letting does not provide you with a set income amount to rely on, therefore long-term letting may be more suited to you if you are looking for a more stable and concrete investment.
There are ways that you can make up for this as a holiday let owner however, as short term letting allows you to increase your prices during the busier summer months which could help plug the gap from the loss of bookings in winter. Learn how to set your holiday up for winter to try and maximise your off-peak bookings.
Running a holiday let requires almost constant attention, which is a downside for those that don’t have as much time on their hands. Full changeovers, cleaning and any maintenance need doing after each stay which can be hard to keep on top of during peak periods. Also, with the select few guests being in the ‘holiday mindset’, it is possible that they may not treat your property with as much respect as you would like, resulting in more fixes being required.
If you don’t think that you have enough time or you live far away from your property, then Sykes can help you out. We offer a bespoke Managed Service that is designed to give people a helping hand with their changeovers, cleaning, maintenance and more.
In contrast with long-term letting, owners of short term lets are responsible for covering extra costs such as utility bills and council tax. You can however include such costs within your rental rates to keep your outgoings down. Use our guide on the costs of running a holiday let to calculate how much your extra costs add up to.
When considering investing in a holiday let, there are extra costs that must be taken into account.
Stamp Duty is one of the larger costs that people may not consider when looking at investing in a holiday home. Also known as Stamp Duty Land Tax (or SDLT), it is a tax that must be paid when buying a property in England or Northern Ireland. The amount that you pay depends on the purchase price of your property.
In light of the COVID-19 pandemic, the purchase price threshold for not having to pay Stamp Duty has been increased from £125,000 to £500,000 until 31st March 2021 – making this is an even better time to invest in a holiday let. Discover more about how Stamp Duty has changed due to the pandemic.
VAT and Business Rates are among the other additional costs that must be accounted for if you are considering investing in a holiday let. Read our Furnished Holiday let tax guide to find out more.
When buying a holiday let, you’ll need a specific mortgage aimed at those offering short-term lets to holidaymakers. There are fewer providers offering this type of mortgage than those that offer standard mortgages, and there can often be restrictions on, such as the maximum loan-to-value (LTV) a provider will offer. Read more about how to qualify for a holiday let mortgage for further information.
There are also some tax benefits with holiday let mortgages. For example, you can currently offset the interest on your mortgage against the rental income you make. So, if your property made £12,000 in one year and the interest on your mortgage for that year was £9,000, you would only be liable to pay tax on the £3,000, according to your own tax rate.
Our complete guide to holiday let mortgages has all the information that you need.
When trying to decide if holiday homes are a good investment, it is important to estimate what Return on Investment you can expect before you begin purchasing a property.
On average, Sykes owners earn around £18,000 annually through bookings, but the amount that you could earn will depend on a variety of factors such as:
Our helpful and knowledgeable team of Property Consultants are also on-hand to offer any advice and guidance that you may need. Each focusing on their own area of the UK, they have a wealth of knowledge to share regarding location, pricing and demand to help make your decision.
If you’re open to choosing a property based on its earning potential rather than having your heart set on a specific location, here are some top tips to help.
In our in-depth review of the UK holiday let market, the Sykes Staycation Index 2019, we found you earn on average 11% more if your property accepts pets, while properties with hot tubs make 54% more than other properties in the same region.
Our data revealed that Cumbria was the top-earning location in the UK, with four-bedroom properties making an average of £28,000 in gross income per year, while the Cornwall came second, with four-bedroom properties earning an average of £23,000 annually.
If you’re always on the lookout for the latest trends, there are some destinations in the UK that are becoming increasingly popular. Our data suggests that some of the most popular regions in 2019 were North Wales, Cornwall and Cumbria & the Lake District.
When you’re choosing the location of your holiday let, think carefully about who you are trying to attract – for example, do you want to attract families in Cornwall or outdoor lovers in the Lakes? However, if you’re planning on visiting your holiday home with family and friends too, don’t forget to factor in your journey time to the property as well.
Likewise, if you plan on managing changeovers and maintenance to reduce costs, you’ll need to be able to travel to and from the property easily.
Read our guide on the best places to buy a holiday home in the UK for more information.
When you’ve bought your holiday home, there are ways to boost the income you get from it. For example, we noticed some clear recent trends that could help you generate more revenue.
Our customers are clearly looking for a little luxury, as properties with hot tubs, on average, earn 26% more than those that don’t. Holidaymakers also want to stay connected while they are away – properties with Wi-Fi earn up to 26% more than those without.
Home comforts are also attractive to travellers in the UK. For example, offering pet-friendly facilities could boost your earnings by up to 13% a year, while installing a welcoming log burner could increase your income by around 12%.
Read our guide on the five ways to maximise your holiday let income for even more ideas on how to increase your earnings.
* At the time of publishing (27th November 2020), Sykes Cottages has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s mortgage and saving affairs are different, further advice should be sought from a qualified supplier
*Based on a 7 bedroom property in the Lake District with bookings between October 2017 to September 2018.
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