Any holiday home owners ever make a profit?

[Wallywobbles]

I've owned a holiday home since 2010. It's at the beach in Normandy. It's still mortgaged. It sleeps 12 so not what everyone is looking for but we do manage to rent it for about 14 weeks a year.

Our costs are about 2K a month. I'd imagine more now with rising gas prices. And I don't think we've ever made a profit on it. The sheets laundering is the biggest cost after the mortgage.

Is this also the case in the UK? I know rental owners are seen as parasites by some.

I used to live locally and am now 2h away but have an amazing local cleaner. The first 2 years I did it all myself but with 2 small kids and a full time job it was back breaking work. All weekends and holidays we did nothing else but the changeovers on Saturdays. And hours of sheets ironing over the week.

HNRTT but what do you consider to be profit? Is the revenue making a contribution to the mortgage and what about price appreciation?

Set up a Ltd company and you will pay corporation tax instead.

@OctopusSay - that may be true in uk, but isn’t where we live (Europe). Any rental income is taxed as a second job, so your taxed immediately. Ie if income is €40k regular job, you will be almost at 40% bracket. So if you then have holiday let, basically every € your straight away taxed at 40%.
So take €10,000 holiday let ‘income’. By the time you pay 40% tax, utility bills, council tax, business rates, paying for basics like replacement items, your not making a huge ‘rolling in it profit’. Maybe €3000 left max, which goes into pot for new windows or large renovations.

We do make a profit. It’s my ‘job’ whilst home with toddler. But it’s basically min part time wage, with benefit of no childcare costs. It helps cover essentials. I would make more if full time rented, but that’s not really realistic where we live right now

[quote Caspianberg]@OctopusSay - that may be true in uk, but isn’t where we live (Europe). Any rental income is taxed as a second job, so your taxed immediately. Ie if income is €40k regular job, you will be almost at 40% bracket. So if you then have holiday let, basically every € your straight away taxed at 40%.
So take €10,000 holiday let ‘income’. By the time you pay 40% tax, utility bills, council tax, business rates, paying for basics like replacement items, your not making a huge ‘rolling in it profit’. Maybe €3000 left max, which goes into pot for new windows or large renovations.

We do make a profit. It’s my ‘job’ whilst home with toddler. But it’s basically min part time wage, with benefit of no childcare costs. It helps cover essentials. I would make more if full time rented, but that’s not really realistic where we live right now[/quote]
Surely the 40% tax is on the profit, i.e. after the utility bills, council tax, business rates etc., not on the gross rental income?

@irregularegular

I pay someone to manage it (look after bookings, communicate with guests, arrange cleaning and laundry, refill bathroom and kitchen supplies etc). It's quite expensive but there is no way I was doing that myself!

Me too, can I ask what company you use and would you recommend them? Thanks

I do make a profit, but I need to as I have no other income! I do all the management and changeovers myself.

We have a two-bed property in the UK that we let out as a holiday let. It is a lot of work and because it's not close enough to where we live we have cleaners do the changeover. It does suck up quite a lot of money but mainly because as soon as something breaks we must repair or replace it, whereas in our own home we may wait (to find something reasonably priced).

For us the rent minus costs is small but allows us “free” winter ski holidays and summer mountain adventure holidays which is substantial with 4 kids. It also has also been great for getting to know and become involved in the local community over the years. I am not sure we will keep it forever but it has served it’s earned it’s keep and served it’s purpose over the years…just.

Friends who bought in Cornwall 10+ years ago have benefited from huge uplift in price or property, increased capacity to rent it out and easier availability for them to drive down for a weekend than we have with our choice but we have enjoyed spending a month skiing over xmas and a month in the mountains in the summer with the kids “for free”.

@HolidayLetter

I do make a profit, but I need to as I have no other income! I do all the management and changeovers myself.

Same here. I've made a very good living out of owning holiday lets the past 20 years. It's been my sole income. But I only ever buy small places in good locations and I manage and clean them myself.

My friend has a one bed plus sofa bed rental in Scotland, it's rented out 40+ weeks of the year. It's basically the annex to their house so they fully manage themselves (though they have a cleaner who also cleans their house) and only do minimum 5 night lets for convenience (they often get 4 week plus lets from writers due to location). As there's no separate mortgage it makes good money

@bettydelrimple Same here. It's hard work, but it is at least something that a divorced former long-term SAHM can do!

This is interesting, we are seriously considering quitting g our jobs and making an offer on a property with two air bnbs in the grounds of the property. They’re already let. We would only have a very small mortgage to pay (in total) less than half of our current amount. I was hoping that there would be a good profit! Maybe this is unrealistic.

That doesn't sound unrealistic at all, @MissBPotter - esp with the small total mortgage (as a big mortgage is obviously a big thing that cuts into profits). If you do go down this route, there are better lettings sites than Air BnB, though (Air BnB has encouraged anyone and their dog to think they can run a holiday let, but doing it properly is very different. I only get a small handful of guests from Air BnB). Good luck!

@MissBPotter remember that weekends are no longer free. And you will have to be reachable always. High season is when you would normally choose to go on holiday too.

It's not an easy option and you'll never be rich. And most of its bloody dull work.

Thanks @HolidayLetter good advice, we shouldn’t definitely consider other sites. It’s a really exciting prospect but we would be doing all the changeovers ourselves and the admin and maintenance side also.

Sleeps,12 is huge. So of course your cleaning bills, laundry and maintenance will be more. You would be better with a smaller house. Also you have a mortgage on it.

@LauraNicolaides

Only if house prices are totally static? If they're going up by more than 3% a year then the house is a great place to have the money.

No, you still need to account for the cost of the capital to judge your investment.

You've got £200k tied up in a house. If you could make £6k pa by investing the money elsewhere then that's your opportunity cost, and you need to make £6k on your holiday cottage just to break even. It's the same as having to borrow the £200k and paying £6k pa in interest.

If you could make £6k pa by investing the money elsewhere then that's your opportunity cost, and you need to make £6k on your holiday cottage just to break even

But in this situation the owner is making £6k a year, even if they leave the house empty, and never rent it out.

We own a holiday let on the coast in a popular holiday spot, about 2 hours away from our home. It was DH’s family’s holiday home since the 1960’s and we have inherited it. We rent it out through an agency so we have to pay commission, plus vat on that. Then there is the changeover cost including the laundry, as we are too far away to do it ourselves, so we have to pay a cleaning company to do it. Plus all the other usual bills and expenses, so we don’t make a huge profit. We close from end Oct to April as the price of the low season rental means we hardly make any profit on those times. With the recent news that the Welsh government is giving local authorities the option to increase council tax for second homes up to an extra 300% from next year, we probably will move to having a tenant in there. Currently in Wales, you have to offer out your property for 140 nights and it be actually occupied for 70 of those to qualify to pay business rates (and therefore get small business rates relief) but it’s set to be increased to the equivalent of the property being available for 8 months of the year and actually let for 6 months, which would be pretty much solidly rented out from April-Sept inclusive, without a break, which is not realistic. Outside of these conditions we would have to pay council tax which currently is at a 100% premium and may be increased to 300% extra next year. In fact, we just got a call from our current guests just after 9pm this evening, to say the lights were not working (switch had tripped, somehow) and that someone has parked in their parking space while they were out having a meal! So if you are thinking of having a holiday let, do your research and be very clear on the set up expenses, running expenses and likely costs etc. before you start. This year is very slow for bookings too,, as we still have our fixed expenses whether we rent it out or not.

If you could make £6k pa by investing the money elsewhere then that's your opportunity cost, and you need to make £6k on your holiday cottage just to break even

But in this situation the owner is making £6k a year, even if they leave the house empty, and never rent it out.

They're not! You're overlooking a cost - the opportunity cost.

"What Is Opportunity Cost?
Opportunity costs represent the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another. Because opportunity costs are unseen by definition, they can be easily overlooked. "
www.investopedia.com/terms/o/opportunitycost.asp

They're not! You're overlooking a cost - the opportunity cost.

No.

Opportunity cost is taken into account when assessing whether to go ahead with a project. If the money could be invested in shares or property and ROI is £6k a year either way, then both investments give an equal ROI.

The existence of an alternative project does not mean that neither project is profitable and HMRC certainly won’t see it that way.

I think you are saying that you need to consider whether it would be better to invest the money in something different and just e.g. rent a ski chalet yourself once a year, which is fair, but the OP is about the ROI on holiday lets, and people are just answering that question.

For us the biggest ‘benefit’ is the space we use ourselves if we don’t rent it out. It means we have decent space for family to stay off peak ( we are overseas).

I think it can be a decent income, and lots do full time here. But il wait to do more weeks when Ds is a bit older. I also do all maintenance/ changeovers myself

We are just entering this world.
We bought a flat in Spain which has historically been rented for 10 weeks of the year to Spanish people.
T is in relatively good decorative order, but the furniture that came included is dire.
We have spent £600 on sheets and towels and are going over next week or a holiday.
This will include more outlay on TV and another trip to IKEA.
It’s not about profit for us, as long as we manage to cover the maintenance and agency costs, we will be happy.
We are planning to move permanently in a couple of years.
Just need to learn Spanish

Me too, can I ask what company you use and would you recommend them? Thanks

It's a very small business that only looks after oxfordshire properties.

I live in Cornwall and know several people with holiday lets. They range from a farm cottage to a huge family holiday house in a very popular and ultra hip seaside location.

I think the big seaside house probably makes a profit but the owner spent an absolute fortune on it to bring it up to spec. She keeps it because it has been in the family for years and so there is a big personal attachment, the whole family use it several times a year to get together and I think she only needs to make enough profit for it to pay for itself.

Buying holiday lets as an income would be very risky, it would take a long time to pay back even a small mortgage. You would have to service it yourself, which, as someone has said upthread, means working every weekend through the holiday season. Advertising it on websites can also chip away at profits. The ideal is to build up a set of guests who keep coming back.

Also bear in mind that communities in many pretty areas are beginning being to be harmed by the explosion in Airbnb, second homes and holiday lets, so there is a risk that much higher taxes and extra levies will be imposed soon. I think you would need to bear that in mind

I have run several holiday lets in the UK and have made reasonable profits. I've always used professional cleaners and laundry companies which do cost, but I still find myself constantly fixing items, replacing items, unblocking drains and toilets and cleaning shower filters etc. All the word jobs basically! I have to do all the bits that the cleaners miss, despite playing them very well. It's important to buy in a touristy area and to furnish beautifully. My cost are currently soaring, especially heating, but I can't charge more as I'm already struggling to fill the weeks already due to people tightening their belts due to the cost of living. I think it's going to be a bumpy ride over the next few years.