Returns on a holiday let?

[bitclueless]

Not sure where to put this - may try chat as well!
I am trying to work out what the expected net profit might be on a holiday let. I realise this is a 'how long is a piece of string' type question, but anyway...
If you have a commercially run holiday let, what kind of income and expenses are you getting? How can I estimate likely returns on such a cottage - I have no idea what expected occupancy rates might be, nor what to estimate for marketing, cleaning, bills and maintenance etc. there would be no mortgage repayments. Obviously it would depend on how marketable the property is, but we are looking for a cottage with a budget of about 400k in the lake district...
Grateful for any pointers....

www.hmrc.gov.uk/budget2010/furn-hol-lets.htm

Changes to rules have been recently introduced. This means the bar is set higher for your property to qualify, but if it does (ie it's a business and not just a second home you happen to let out on occasion) the tax breaks are like that of a business (much better than just letting property as a landlord).

If there is any doubt ensure you make an election of primary residence when you aquire your second home as this will assist with CGT later on.

Thanks, I wasn't aware of that change. However what I'm trying to calculate is the income generating potential of a holiday cottage (rather than any concrete plans to do this right now, its more of a future plan) - so hypothetical scenario calculations really (trying to weigh up different investment options).

More tips here but as said on other thread doesn't a lot depend on location and size as that will drive demand/rent (for example I know bil struggled to meet hmrc test and I don't think breaks even on family house in Cornwall).

link

Yes, perhaps its all too imponderable. That link does indicate that a ROI of 4-5% would be viable (suspect that many single lets don't make that amount).

Can you pick a couple of made up examples in areas you are looking (eg imagine a property price, estimate cost and also rental based on a quite low level of rent).

Well, its easy enough to find a property for sale that is used as an existing let (in the area we're looking), and to check the rental charged. What's harder is to know what to assume for occupancy (and hence estimate income - but easy enough to calculate maximum possible income), and in particular how to estimate costs - e.g. bills, maintenance, marketing, laundry and cleaning etc etc. So I thought it might be easier to ask people who are actually doing this to tell me if they make any money on it!

I would ask bil but he always starts to try and hard sell it to rent it to us so it's a bit off putting

Hello there and good luck with your venture. We have a holiday let in Kendal, just outside the Lake District National Park ( www.kendalcottages.com if you're interested). Our advertising budget is well under £1000 a year and we achieve an occupancy rate of 85-90% despite us a) being by far the most expensive in the town, and b) only just entering our second full year. I should stress, though, that this is atypical. I work in online marketing for the tourist industry which of course helps and we have set our stall out to offer high quality holiday accommodation.

It's very hard to suggest likely income without having much more information. Things you need to ask yourself in order to have a better idea are...

• how many people will the property sleep?

• what is your target market? (the top end of the market will attract a greater rental, obviously, but may be more expensive to maintain)

• how much rent can you command? (look at other properties)

• what occupancy levels can you expect? (again, look at other properties and get an idea from availability calendars) - bear in mind the seasonality of some parts of the Lake District

• are you intending to use an agency? (if you are, be warned they can take a hefty cut!)

• who's going to clean/turnaround the property? (obviously if you do it yourself, you can a) ensure standards are maintained and b) reduce the wage bill)

• is there a garden to tend as well as property to clean? (cutting lawns, etc.)

etc. etc.

I hope this gives some food for thought. Good luck!