Talk to me about buying a holiday home as a business

[logosthecat]

I have 100k to invest and I don't want to move for a variety of reasons! I'm almost mortgage free and on a very low rate of interest which means I pay very little a month. (I have additional savings that can cover the remainder of the balance in case of emergency).

I was wondering about the wisdom of putting the money down as a deposit on a holiday home and renting it out for part of the year, while spending another part of the year in it myself. It would be 200-300 miles away from where I live, so I would be getting someone else to clean/manage it. I would probably get a mortgage on it and seek to pay this off using the income from renting it out. I am seeing it as an investment for the long term (I have no pension) rather than as a money-making business with an immediate yield.

However, I have no idea what the economics of this are. If anyone does this, where do I start? Is there a good book? What do I need to look out for?

TIA!

[bojorojo]

There is so much to consider. If it is a pension then do you need capital growth? Otherwise you just won't get anything out of it at all if rental income pays the mortgage. You also need to consider how many weeks you need to let it out to make it pay. No holiday cottage rents out exactly the same weeks every year but high season must be full. You also have to consider expenses. Bills, wear and tear, decoration and general replacement of breakages costs money as will cleaning, welcoming guests, taking bookings and management as it is too far from home for you to do this. We pay 20% of our income for just this alone. You cannot just pop down the road if something goes wrong. Someone will need to do it for you.

Some people do make money but some do not make a lot and it can be a lot of hassle. Only do this if you want to live in it and will get real pleasure from that but that cuts down the rental options so you will not maximise your income.

[bojorojo]

I meant to say that a strong rental market will also be vital. Nothing tents out if people do not want to go there. It must also be in good condition with comfortable furnishings. What 'granny' had us usually not good enough. Take a good look at the cottages in the area that are available through the agencies to get a picture of what you need to provide.

[IceMaiden73]

You also need to read the HMRC guidelines on holiday lets and how many weeks a year it must be let out, etc

[logosthecat]

Thanks for your replies, I appreciate it!

I am thinking of this as an investment. I already have a house to live in and an income, so I don't need these. The plan would be to pay off the mortgage then sell it when I get to retirement to liquidate it and have some money. Does that make sense, or am I missing something? I would hope that the rental would cover the mortgage + bills + management, but I realise I need to check this out to make sure it is realistic. I would be in a financial position to pay the mortgage in odd months should it not be full, but ideally I would not want to do this. I would be looking to keep it in very nice condition indeed.

I will check the HMRC guidelines, thank you!

[RebelandaStunner]

We own our holiday home outright. It has to be immaculate for guests we also leave a welcome pack with things to do in the area, food hamper, emergency numbers, fire risk assessment, information for the appliances, plus spare batteries, lightbulbs etc. It needs to be home from home but better. We do everything ourselves except when we are on holiday my dsis does it, if someone else did it all the time it will eat into your profit. We have had the odd problem when we have had to get things sorted asap e.g. shower broke. Are you going to have someone on standby to sort issues? Remember the guests are your business so everything has to be right. Then you get repeat customers. Otherwise it's not much hassle and great because we use it too. I class it as my second job.
You pay business rates instead of council tax and should get relief. Ours is in AONB and very popular with cyclists and walkers and we except dogs (extra 40% bookings) so it's used year round. Low months are November and January but we'll still get 1 or 2 weekends at least. We have to book when we want it ourselves quite a while in advance now. We use a letting agent who take around 20%. But the money is pretty good even so. You need holiday let insurance - ours covers when it is empty, if guests leave windows open and you get burgled etc. You also need CO 2 and smoke alarms checked between guests and to record this. Also fire blanket/ extinguisher. HMRC as mentioned above have all the rules and regs.

[logosthecat]

Wow, that's really helpful to hear rebelanda.

I suppose one thing is that I live very close to the peak district and if I got a place there, I could do all the servicing myself. BUT I don't really want a holiday home there for myself (I'm really looking for an escape from the rain!). So I want a place that I can use myself for some weeks a year and rent out the rest of the time. Part of the idea is that I'd like it to be near my parents on the Suffolk coast (an AONB with some tourist value) but some 200-300 miles away - part of the idea would be to have a place that gives me flexibility as I get older. For the next 5 years, for work reasons, we are very much rooted where we are, but after that there is actually a very good chance that we will be able to work remotely much more, and it would be nice to have a place we can use occasionally. (In case it's relevant, I am in my 30s, DH early 40s; DH has a good pension but I have nothing, so part of the idea is to have an investment that we pay into and then liquidate when I reach 65).

I will check out all the rules & regs - I realise that I need to be absolutely precise and vigilant about this and about the upkeep. I am not workshy about such things (and I don't underestimate how much work it is)- I'm generally quite organised, though.

[Needmoresleep]

You need to choose your area carefully. Research holiday lettings in the area, prices and so on. We have a holiday let near my elderly mother. We get good returns during the summer school holidays but this season is short. Many holiday lets are then let to students from late September to early June, which is probably the best way of maximising revenues. We don't and instead probably get about two weeks bookings each month (families visiting relatives, weddings, walkers, overseas parents dropping kids off at language schools, short terem contract workers) which means we can use it other times.

Rates are lower outside summer weeks, and three day books are more common, so with linen hire, maintenance, cleans etc I reckon 40% of gross revenue goes on agency costs. Plus you have bills, including wifi and council tax, plus seasonal costs like deep cleans.

The agency are strict and will only take properties on which meet their standards. It does need to be fully furnished down to the last egg cup. They take a lot, but work very hard for their money.

Location is important. Parking is essential, and it helps ours is near the beach. Cheaper town centre properties also do well, but mainly with short term contractors.

We would do better financially letting the flat as a standard unfurnished BTL, but then we would not have use of it. I see holiday lettings as a way of recouping some of our costs, rather than of making money. I like the fact that when we go down the flat is clean and equipped. I also like being able to lend the flat to friends but with the proviso that they pay for the clean. It means that they are not running around cleaning on their last day, and that I do not worry that it is not ready for the next guests.

[hooliodancer]

Hi. We are in the process of doing just this.

We are putting 83k deposit on a 275k house. We will spend 17k doing a little work on it and furnishing it. The agency we will use estimate we will get 23k in rental, so after we have paid everything we will make about 6k profit. We will be using a management company as we live 200 miles away.

We will use it, but only when it's empty, so primarily it's a business. We have bought in an area where there is a lot of winter business, in a small popular village, 2 minutes from the beach. We could have gone cheaper a bit further out, but less likely to get the winter lets.

The most we could have borrowed with a 100k deposit was 330k. There are only a few mortgage companies who lend on holiday let's, but the process has been straightforward as they base it on what the cottage will earn.

This is a pension for us- the small income plus (hopefully) capital growth when we sell. We may move close to the holiday let in a few years, in which case we can manage it ourselves and save a bit of money.

I am quite excited!

[Costacoffeeplease]

We bought a holiday let about 15/16 years ago, it's not in the uk though, it's also a kind of pension investment for us. We haven't regretted it at all, we own it outright and moved to the same place so do almost all of it ourselves (except for the cleaning)

[lapcat]

We have a holiday let. It used to be our home but luckily seems to be in a place where there's demand.

Essentially the income covers the mortgage+management company (12.5%)+cleaning+manager+gardening+maintenance+tax. It's running along pretty cost neutral now. However it did cost a huge amount to set up. It sleeps 16 so quite big but I estimate furniture/decor/kitchen equipment was around the 20-25k mark.

I do think the bigger properties seem to be in demand whereas sometimes there seems to be oversupply of the smaller ones.

The most useful thing I did was look at properties that were renting out for a lot of money in our area and tried to replicate what they were doing and used their management company. People will pay a huge amount more to stay somewhere with a posh website which is clean and tastefully decorated, and actually those things don't cost a huge amount in the scheme of things.

[logosthecat]

It's really exciting to hear about all of your lovely houses!

It sounds as though there are significant variations, with some making a profit, while others run cost-neutral (but obviously, you're investing in the mortgage, so it's a kind of less immediate 'profit'). The latter would be fine for me, though obviously the former would be nice.

I think I need to look very carefully at areas, rates of profitability etc. - really do my research. I'm going to take my time over this rather than rushing in.

[RedWineLush]

Could you PM me a link to your holiday home please rebelander? It sounds great - I am always on the look out for nice cottages that take dogs.

[RebelandaStunner]

It is great. Can I do that without getting in trouble? I don't advertise on MN though have thought about it. How many of you are there? Cottage only sleeps two.

[RedWineLush]

Oh that's a shame there are four of us....dreams of losing the kids for an adult holiday! I think it's ok to send me link though - I have loads of couple friends with dogs that love walking and are always looking for nice places. And you never know, one day I might ditch the kids!

[hooliodancer]

We were told that taking dogs is an absolute must for maximising rental income. Also WiFi and a big telly!

I think you have to pick your area very well. Selling year round- even short breaks- seems to be the key. We were buying one which fell through, it had proven rental income for 42 weeks a year! It was amazing, but sadly unmortgageable which we only discovered after paying for the survey etc.

[sadie9]

Remember if you plan to live in your holiday home during peak holiday times then that's a big chunk of rental income gone.
If it were me I would look at buying a plain ordinary house or flat in a busy town near you, put less of your savings into it, and get the tenants to pay the mortgage for the next 10yrs.
So less of your 100k is gone into the property. They whole idea of property investment is that you make as little investment as you can, and the tenants pay your mortgage for you. Otherwise you are banking on the price of houses going up. And that can't be guaranteed. If Brexit kicks in also maybe people won't be going on holiday much. But they will always need somewhere to live and rent in a big towns and cities.

[hooliodancer]

Interesting. I have the opposite view really.

People will always go on holiday, they may downsize the holiday though, so stay in the UK rather than go abroad.

We don't know what will happen with Brexit, but rents may rise or fall, value of houses may go down. With a holiday let, if the house prices suffer, you are still getting the same rental income as the price of a weeks holiday is unlikely to fluctuate. Also, you dont get the possibility void periods or bad tenants who leave owing you money, or who completely trash the place then emigrate (we have had all those scenarios on our buy to let property!)

House prices are pretty high now, we couldn't make a profit on a 100k investment on a buy to let.

If you buy in a popular area, with a good agency (certainly to begin with) personally I feel there is less risk. Obviously it is a personal choice. I do like the idea of being able to have a few weekends in our cottage too!

I meant to say before, I discovered an excellent and very informative forum site called Lay My Hat which might interest you.

[bojorojo]

Woodbridge has quite a lively feel and sailing people are happy to come out of school holidays so a decent season. You will almost certainly need to let it out in high season and half terms to make enough to pay a mortgage. If you use it when you make the most money, then you will suffer financially. I think expecting to make lots of money at this and thinking the property will make lots of capital gain is not necessarily a good pension plan. Also you have to pay capital gains tax on any profit you make from the sale in the future. If there is a Labour govt at the time, that could eat significantly into any profit. By doing this for a pension, you are not getting any tax breaks either so make sure it really will do what you want regarding a pension.

[logosthecat]

Yes, I need to find about about the tax situation & the pension. I think I'm going to talk to a financial adviser.

I take the point about a local flat being a better investment. But part of the attraction for me is being able to make use of the fact that we will be able to work more flexibly to spend more time with my parents as they get older, and have somewhere that is nice to stay in. Property closer to where I live wouldn't let me do that, and I'm not sure I'd really feel I was 'getting away', IYSWIM. The idea is that we get our current house in tip-top order with a full refurb/extension including new everything and pay off the remaining mortgage in the next 5 years. (We have full costs for this and are about to embark on the work, which will leave us with a big sum spare).

Woodbridge is one area I'm thinking about bojo. Aldeburgh, Orford, Snape would be others.