Holiday Lets: A Brief Overview

Holiday letting is a type of property investment that has some unique advantages and disadvantages over more conventional letting. This can make holiday lets a good investment, but not always. As with any investment strategy, it pays to know the detail.

Advantages of Holiday Letting

The holiday let market is definitely trending in the right direction, with an increase of people looking to holiday in the UK. With Brexit complicating travel, and Covid deterring it, more people are staying a little more local.

Demand, therefore, is on the up.

The advantage of a holiday let is the rental price you can charge. A prime location, in season holiday week can bring in as much, or more, as a month of a standard tenancy let. You’re looking at between 10% and 14% yield for the foreseeable future.

Tax Benefits

Holiday lets have additional tax benefits over standard buy-to-let properties, further increasing profitability. While we always recommend that you speak to an accountant, the HMRC treats holiday lets as businesses and not buy-to-lets. This provides the possibility of claiming the full mortgage interest as tax relief.

For the property to be classed as a holiday let in this regard, it would need to be fully furnished and available for let at least 210 days per year. It would also need to be let and in use for at least half (105 days) of that period.

Similarly, being a business, you will likely be able to claim back running expenses such as bills and maintenance costs. Business Rates can also be paid instead of Council Tax, with business rate relief available if you meet the criteria.

Tenancy Rights

Tenancy rights for holiday lets work a little differently than for standard tenancies. Holiday lets are generally paid for in advance by tenants, so there is no issue with receiving rent, and there are no real dangers of having to evict problem tenants.

You can also use your holiday property yourself, saving money on paying for a holiday of your own. This is often one of the main reasons property investors invest in a holiday let over a more conventional let.

Disadvantages

As holiday properties are usually in prime locations, they are likely to cost more to purchase. Prices for holiday lets are high for several reasons, including limited supply and high demand, and their potential for letting returns.

Financing a holiday property can be difficult. Specific mortgages are required for holiday lets, they cannot be purchased on a standard residential mortgage. It is possible that holiday let mortgages are going to charge higher interest rates than residential mortgages.

Wear and Tear

Because holiday lets have different tenants every week or two, and the let is expected to be cleaned before the new tenants arrive, there is a higher level of wear and tear than you would find in a longer term residential property. This can cut into your profits and you should budget accordingly.

There are two routes you can go down in this regard. You can employ a letting agency to manage the cleaning, changeovers, repairs, and so on, or you can handle it all yourself. It would be up to you to decide how the cost of the letting agency weighs up against doing the work yourself.

With holiday lets, the landlord pays all the utility bills and Council Tax (where applicable).

Rental Voids

Voids, in which you don’t have any tenants, are going to be higher than residential properties for the most part. Depending on the location of the property, the preferred letting times will be seasonal. A beach property, for example, would be in much more demand and be much busier in Summer rather than Winter.

Choosing the Right Property as a Holiday Let

Not every property will generate a return as a holiday let. Choosing your holiday property carefully is the first step to making it work.

Location is vital. Demand for holiday lets varies from region to region, so you need to pick an area that will generate a lot of interest. Good areas to look at in the UK include Cornwall, Devon, Dorset, the Lake District, the Peak District, and others. Cities are also popular destinations for holidays.

Some types of property are better as holiday lets than others. Good investments are generally two- or three-bedroom properties. Any smaller or larger, and the pool of interested holiday tenants becomes too few to ensure regular letting.

Amenities and local area are important, as holiday tenants will look for certain things when they are planning their holiday. Things like the view, distance to the beach or to shops, private parking, a garden, or to children’s activities, can all influence holidaymakers’ decisions on whether to choose your property.

Facilities

Your holiday let should be well furnished and well equipped. There are several ways to go about this, such as designing the interior with a traditional look (open fire, wood beams, and so on) or make it as modern-looking as possible. Different people will be interested in different styles, and you should ensure the style of the property suits the location and the type of people who would be visiting.

Regardless of style, the property should have modern facilities. Good WiFi, a TV, and a well-equipped kitchen are all expected by most holidaymakers these days.

Additionally, the better your property, the higher rental price you can charge. So you can generate a good profit from a high-value property.

Marketing

Holiday let marketing must be done correctly if you want to ensure your property is booked for as much of the year as possible. Good, professional marketing can make the difference between a profit and a loss on your rental returns.

There are many holiday letting companies that you can sign up with to advertise your property. This is probably the simplest way to market your property, as the company will cover everything for you, but it will also be the most expensive.

Websites such as Booking.com and Airbib.com are good places to advertise, if you want a more hands-on approach to your marketing. You will still have to pay to advertise on these sites, but you will have more control over the listing, and you’ll have to take care of any admin work yourself.

It is also possible to set up your own website. This, in the long term, would generate the best return, but it would require a lot of work to build, maintain, and then rank highly in the search engines.

Summary

Holiday lets are a great property investment, so long as you avoid the few pitfalls that might catch you out. Generally, a well-maintained holiday property in a good location will always bring in tenants, and can being in a profitable return relatively quickly.

Investing in property, similar to any other form of investment, involves inherent risks. Our website, services, or products do not constitute financial, tax, or legal advice, and should not be relied upon as such. Before making any investment decision based on the content provided on our website, products or services, we strongly advise seeking independent specialist advice from appropriate professional advisors.
Your capital is at risk. The value of your investment can go down as well as up. Historic performance and forecasts are not a reliable indicator of future performance.

Press ESC to close