Holiday homes

[MGFM]

After some positive stories about holiday homes.

Situation : we have our own house with a £250k mortgage. Equity about 70-80k. Quite steep repayments at the moment of around £1400 but hopeful that will drop when we remortgage.

We own a buy to let which was an 'accident'. Mortgage 130k. Equity 70-80k. The rent just covers the outgoings. We actually undercharge out tenant but they are excellent and they have been there 4 years and keep the place in good order so can't see us ever charging going rate.

We have 60k in stocks and shares isa. I want to take this money and buy a holiday let in Cornwall. We make a few thousand a year on the stocks and shares isa. I just don't know whether it would be a good investment. I want out money to work for us. I also do have a conscience and part of me knows it isn't great for the locals for people to buy Holiday properties so I am still on the fence.

We both work full time and our family income is around 95k before tax but we have quite steep nursery costs and a small amount of debt in the form of 0% finance on a few things and a little bit in a 0% credit card. We don't touch the isa. We add £250 to it each month.

Any advice?

OP I think the problem is that this won't be optimal as a straight investment but that's not really what you're wanting to do. My question is how will you pay the mortgage on this property if you feel you're already stretched financially, because it's unlikely that the renting of said property will be enough to cover the mortgage once you take off tax and agency/cleaning bills. If you know you can do that, then go for it- your logic stands because you can't quantify your desire for a holiday home in this equation. However, on a pure yield basis, it's unlikely to outperform the ISA

are you saying places rent better when don't allow dogs? For some reason I thought it's rent better!

Plenty of people won't rent a place that allows pets.

One of my clients has a barn conversion of 4 units converted into holiday homes. They tried to attract as many people as possible, so they made two of them pet friendly and two are no pets allowed. The dog friendly ones aren't as popular and have more void periods, so they're considering converting one of the pet friendly ones into a no pets allowed.

But it will depend on the locality. Holiday homes in the countryside are probably more likely to attract people with dogs to go dog walking. Homes in or near major attractions or cities are more likely to attract people without pets if they're going to spend their days walking around a theme park or sightseeing in city centres.

Frilly are you saying places rent better when don't allow dogs? For some reason I thought it's rent better!

Apologies that should have read are!

We accept dogs in one, and as a result get a lot of out of season bookings because it's a seaside town and dogs are allowed on the beach out of season.

HOWEVER - we restrict where the dogs can go, not that most people listen, request no dogs on (expensive) furniture which most people ignore and as a result it lets for less during peak time than it would if it were dog free.

The second one we don't allow dogs apart from our own because it has a beautiful open garden with river, and the furniture is expensive bespoke stuff that you don't trust people not to allow dogs on.

You'll have all your assets in property. Unless you have some flexibility ie assets in pensions or investments, I think you'll find your retirement 'dream' a bit harder than you think. The ISA 'plummeting' in value comment, makes me wonder if you understand stocks and shares.

I think you need to really work out the costs of running a holiday house - not just mortgage, but all utilities (water is v expensive in Cornwall for example, broadband, costs of cleaners, cost of letting agent (Sykes charge 20% plus VAT), laundry, welcome packs, gardener or lawn service, boiler service, redecoration costs, tax on rental income etc. Do you want to spend your holiday time down there painting and fixing things?

You might find that to cover the running costs you will need to let it for more weeks than you think. And it could be difficult to find someone local to be on call to clean it, sort out the laundry and pop round to fix things when they break. We have a holiday let and many many people do ask us to show them how the tv or oven works, despite clear instruction and a very simple TV and oven. I would be against getting another holiday let if I had a big mortgage to service on it and it was too far away to turn around myself.

We have 4 holiday lets in North Norfolk and last year we had almost full occupancy. We allow dogs and are at the "luxury" end of the market. They are in a company which means paying corporation tax but we are VAT registered so we reclaim the VAT on the all the furnishings/repairs and running costs. We get the small business rate exemption. We netted about £120k last year after paying agent commission (usually 20-25%). You have to be on hand (or someone does) to deal with issues (wifi, power cuts etc) and the changeover and they have to be well equipped and comfortable - the days of people accepting a second hand sofa are gone.

If you want to use it during the summer holidays then you will need to bear in mind that those are the weeks you will always be able to sell and you will lose a significant chunk of income.

I don't really understand if you see this as a revenue generating investment to make more money on than your s&s ISA or if you want to buy it for your own usage and any revenue is a value add?

You seem to want to run it on a "part time" basis, just letting it out occasionally when you don't want to use it yourself. I think that's a flawed business plan. I've used lots of holiday homes and have clients with holiday homes. To get the highest occupancy and make the most profit, you need to run them as a professional business - that way you get maximum repeat business and referrals.

We've stayed in quite a few where they have been used "principally" as the owner's permanent home or holiday home, and they've not been places we'd go to again or recommend. Usually they look more like an "after thought" with personal belongings, second hand/old furniture/furnishings, lack of instructions for equipment, lack of tourist information or important phone numbers, opened packets of food in the kitchen, etc. When owners use them themselves, they are too close and don't see what their customers see.

The modern breed of profitable and well run homes are more like hotel rooms with brand new furniture and furnishing, no clutter, high quality, 100% clean, everything working, good information packs, etc. Not only is it what most customers want, it also means they're really quick and easy to clean/maintain.

Sorry, OP, but from what you've written on this thread, I don't think you're taking the business side of it seriously. I don't think you've enough experience of either business generally, nor the hospitality industry. I just don't see how you can run it successfully if you're just planning to let it out occasionally to cover your costs - without the basics in place, such as a top quality website, and top quality home with everything required, you may struggle to even rent it out occasionally enough to pay your costs.

I grew up in a vibrant village in the national park. I went t the bustling village school. I returned when my children were young ad lived there. Walking down the road on a winters evening back then half the houses had no lights. 20 years later the school is now closing.

Please don't buy a holiday home. It is selfish and it destroys communities. Villages need families who live in them. Not people who want to pop down for the weekend.

To live in a community you need to commit to it.

The shop and post office closed about 10 years ago.

That was just after Sainsburys started deliveries- so between 4 and 8 on a Friday night the holidayers had their shopping delivered as they arrived.

No-one in the holiday homes spent any real money in the village (maybe in one of pubs)

Holiday homes have sucked the village dry. The village has had a school since the 1700s and the shop for at least 150 years.

Financially you'd be better of paying a chunk off your resi mortgage and just renting a property when you want to holiday in Cornwall.

The ways that local people shop has changed and that is why village shops are no longer in villages. It doesn't have much to do with holiday lets, uncomfortable though that is - it's because it's cheaper and more convenient to shop at a supermarket. My village has a small percentage of holiday homes and the shop went years ago before there were any.

As for the school, the village school numbers have gone up since I went there but government policy is against small rural schools because they are expensive so they are encouraging them to cluster or academise or shut even though they now take more children.

I agree that holiday homes do affect the feel and vitality of a community but equally rural communities suffer from lack of employment which is fundamentally why younger people move away. Prices rise and they can't move back again.

Holiday lets are a difference proposition. Often tourism is a central part of the economy of these places, and the wider economy and visitors play a huge part in supporting a number of peoples' livelihoods. Visitors need somewhere to stay if they are going to spend money locally!

I totally agree with the suggestion that many holiday lets are more like boutique hotels - we supply high quality linen and towels (supplied and laundered locally), toiletries (supplied locally), chef service (local), hot tub (serviced by a local firm), dog sitting (local company), high quality electronics etc etc I wouldn't be keen to pay to stay amongst someone else clutter.

I agree that holiday homes and holiday letting businesses are completely different.

There are many holiday letting businesses in our village together with a couple of camping/caravan sites, and they really add and enhance the village for the people who live here. We have four restaurants, 3 pubs and a fish & chip shop, which rely on the tourist trade, plus a few village shops including two mini supermarkets. Tourists, especially self caterers use local amenities rather than driving to the nearest Tesco extra! Tourists also tend to be out and about more to use other amenities, such as walks and tourist attractions. Without the tourist trade, I think our village would have lost most of its amenities and be a lot quieter, even with more residents.

Holiday homes where people come down for the weekend or the occasional week or two, and which are left empty for most of the area are what do the damage as said above. The owners often bring their own food/drink or get a delivery, and once they've done the local attractions, won't be doing them again every year. I think it's these people who do the damage.

I think the hybrid approach ( use yourself plus lets) is fine but it won't be optimal in respect of financial return. Again, it comes down to what you want. For me, the priority is having a base close to family during holidays to the uk. C.22 weeks of income is a bonus and the compromise is that we don't personalise the house at all. However if I looked at it on a ROCE basis, it would be a load of crap.

Just in case people are meaning people like me when they are talking about "holiday homes" ruining villages

Ours was the home my husband grew up in, and he inherited from his parents and was in a large town

We did use the local butcher, greengrocer and baker round the corner, each Saturday, and even drove down specially to buy all our Christmas meat from the local independent butcher before going to my sister and her family for Christmas

So sometimes there are different reasons for people having "holiday homes"

I would only rent it out enough to cover the costs of running it which would probably mean July/Aug and a few weeks off peak.

You do realise you wouldn't be able to claim any of the costs for the rest of the year against your rental income for tax purposes don't you??

It's a very common scenario I often see with people doing a "part time" letting of a holiday home. They get a massive surprise at their annual and eventual capital gains tax bills when in their mind they've not made any "profit" but just "covered the costs", but didn't realise the restrictions etc meaning they have a hefty tax bill even though they didn't see any cash flow income from it!

If you've got it set up for renting out for 3 months of the year, then you can only claim 3/12ths of the costs.

If you're renting it for such a short time, it won't qualify for the special tax rules for a furnished holiday let, so you won't be able to claim full tax relief on the mortgage interest either as it will be subject to the new rules coming in which limit interest relief to basic rate tax relief for normal property letting.

You'll also be liable to capital gains tax on the residential rate of 28% on any profit you make when you come to sell it.

I'm pretty sure your maths won't work have you see how expensive it is to buy in Cornwall. You'll need a massive mortgage and have to charge a lot and rent all year.

Pay part of your current mortgage.

How much time do you have to devote to these properties? I am a LL alongside working FT and it is a PITA. I'm assuming you would use an agent to manage a holiday let?

As others have said, the market is changing and holiday homes have to be well specced and stylish to compete. If you are planning to use it yourself during peak times (i.e. during school holidays) agents might not be interested in putting in on their books as they get less commission for the same overhead.

Do your research carefully.