For many years, the savvy private property investor made healthy returns by buying residential property and renting it out. But with yields now nowhere near what they once were, people are reconsidering their options. Could holiday property be the next big thing?
Recent figures from Visit Britain show a clear increase in demand for UK holidays. The number of people booking self-catering holidays in England rose by 1 million between 2015 and 2017, to 7.23 million. In 2018, 45.2 million holiday trips were taken in England. The ‘staycation’ is becoming more popular, partly thanks to the glorious weather the UK has been enjoying, and partly because the recent fall in the value of the pound amid Brexit uncertainty has made holidaying at home much more desirable.
If you’re tempted to reap some of the benefits of the staycation market, investing in a holiday home may be a shrewd move. Here are some of the points you should be considering:
Tax advantages
One of the big advantages of letting out furnished holiday accommodation is the generous tax treatment compared to a standard rental property. While holiday homes attract the extra 3% stamp duty that now applies to all second home purchases, HMRC views holiday properties as businesses, so it is still possible to claim mortgage interest tax relief, and you can put your earnings into a pension, which also benefits from tax relief.
You can also claim capital tax allowances, rather than wear-and-tear allowances claimable by residential landlords, as well as capital gains tax relief. What’s more, holiday lets do not attract council tax and there are ways to get around having to pay business rates.
It should be pointed out that the property must meet certain criteria to qualify as a Furnished Holiday Let (FHL) in order to benefit from the tax advantages mentioned above, including being let for a minimum of 105 days per year.
Attractive rental yields
To get the best returns on your investment, you need to do your homework. In a holiday let, this means checking the history of occupancy rates and rental yields for the property you’ve got your eye on. Don’t just take the vendor’s word for it; consult local letting agents to get a feel for the numbers you can realistically expect to achieve. Your annual rental yield will depend on your occupancy rate which, for holiday lets, is typically around 21-24 weeks per year, though this varies depending on the exact location.
Unlike with standard buy-to-let properties, holiday homes come with greater costs. In addition to mortgage payments, taxes and insurance, you need to allow for cleaning and maintenance as well as property management fees if you’re not local to the area. The good news is that while up to 50% of your gross income may be taken up by outgoings, it should still be possible to get a net yield of around 6%.
Characterful properties
Your furnished holiday let can be a quirky seaside pad or a historic country cottage, a lighthouse or a windmill – after all, you’re looking for a property with maximum holiday appeal. But just because it’s not for everyday living, it doesn’t mean you can be lax about the condition of the building. Quirky properties typically need a lot of work and can have hidden problems and defects that only an experienced surveyor will notice.
Whatever property you’re thinking of buying, make sure you get an independent valuation and a building survey, for your own peace of mind. “A Building Survey involves a thorough investigation of a property, followed by a comprehensive report that lists any hazards, defects or concerns that the purchaser should be aware of. These details can potentially support a request for specific repairs to be completed before a transfer of ownership, or for the purchase price to be lowered,” explains one-period property specialist.
Wonderful UK locations
We all know that location is a key factor for any property investment, and no more so for a holiday destination. Luckily, the UK is awash with great places to visit. Top spots for buying holiday homes include the Lake District, Cornwall, Yorkshire and the Peak District, but there are pretty, popular locations in all parts of the UK – take your pick!
Once you’ve zoomed in on an area, choose a property that is in a good position to maximise your rental income. Look at transport links, local amenities, shopping and entertainment nearby. Proximity to a beach, spectacular scenery, country walks, pubs & restaurants, local tourist attractions etc are all important to attract the right kind of target market. Decide whether your guests will want to enjoy the peace and quiet of rural surroundings, engage in beachside activities or go shopping, and choose the best possible location to suit them.
The personal touch
It is the case that, compared to the average BTL landlord, most owners of a furnished holiday let have a stronger emotional bond with their property. Perhaps it’s simply a factor of the beautiful setting? Maybe it’s more exciting to cater for short-term holiday guests than deal with regular tenants? Or is it because it creates an opportunity to unleash your inner designer and decorate and furnish the cottage to your (guests’) heart’s content?
The personal touch is certainly what sets holiday homes apart from run-of-the-mill long-term rental properties. The business model requires a different, more involved approach. Understand what your target market expects to find in a holiday home and cater to their requirements to the best of your abilities. Read the reviews and tweak your offering until everything it perfect, and you’ll have a successful holiday rental property with repeat business guaranteed.
