Holiday cottage figures just don’t seem to add up for us at all.

[flowergirl24]

We bought a small 2 bed holiday cottage three years ago.

It needed doing up but is in a beautiful area. I originally planned to manage it and clean it myself. Fast forward three years, the renovation is finally complete and I’m working full time with young children. I’m struggling to manage my workload as it is, but I’m in a decent position work wise, so it’s worth me working right now rather than stepping down to clean the cottage.

Today I had a meeting with a (lovely) housekeeper who told me her going rate which is £174 per changeover. It’s similar to the other competitors in the area. It’s a short term late place to visit, so I’d be looking at paying this twice a week in the main-high season. It is a year round area, although it is quieter in winter.

So:
Mortgage 750
Changeovers, linen etc 1392
Council tax 190
Gas and Electricity 50
Internet 37
TV licence 33

Total costs come to 2452pcm

I just don’t think it’s going to be financially viable for us, which is a real shame.
Add to that an agent who will do all the work but take 24% on bookings and I don’t think we’ll even break even. We’ve been told that we could expect anything between 25-35K gross from the agent.

We’d need to factor in 10% for wear and tear costs for a high occupancy house.

The mortgage is up for renewal in 18 months and it won’t be as cheap as it is now.

We are too far away to be able to manage it ourselves and too busy working full time to manage bookings ourselves.

Should I just sell? Even if I switch to doing a AST (normal tenancy), it is going to cost me quite a lot as I would have to change the mortgage (specialist holiday cottage mortgage on it right now at a decent rate). Not only would I lose that rate, but I would also have to pay for the cost of a new/ switching mortgage.

Does anyone have any advice please?

Yes I would agree with this, despite being a non ironer at home, and we only use cotton and linen, when we go to airbnb's, the bedding is all crisp and flat and its because its been ironed, I would be unhappy if I arrived to bedding like I leave mine, with line marks where its hung on the line!

Elizabeth is that you?

It's never that simple in rural areas where local jobs and wages don't support a local housing market.

It’s not a good way of making money these days particularly if bought recently with a mortgage. just sell.

If you don't use it yourself and don't have a repayment mortgage there's little point doing this unless you are getting significant income so yes you should probably sell.

Owning a single holiday let property at a small loss can make sense if you have your family holidays there yourself or are planning to retire there.

However your maths in the OP is unbalanced. You say the income predicted by the agent is £25-£35k gross and that's clearly with the agent factoring in a less than 100% occupancy rate and a variety of holiday durations but you've assumed a 100% occupancy rate 100% of which are 3-4 nights for costs. Your sums assume 104 changeover cleans per year but how many individual holisay agreements per year is beimg assumed for that £25-35k gross income? You need to do the sums on the same basis for both income and expenditure to find our if you are actually breaking even.

Absolutely I don’t iron my bed linen or my tea towels and my towels exfoliate as they dry at home as line dried. I’d not find it acceptable in a hotel/ cottage.

Possibly this should change as it is energy / labour intensive but I’d rather have a bed that doesn’t look like someone else has slept in it.

I think it surely must depend. We're in one now, its an old converted stables at the back of someones land. So the cost of the renovation would have been paid out, perhaps he is still paying it back. Perhaps he does have a cleaner or someone who does all the work to prepare it for guests, but other than the usual running costs like utilities/insurance/taxes etc, I cant see how he wouldnt be making a profit.

There have been some excellent bits of advice already posted by those with experience of the holiday cottage business and I'm not wanting to sound negative but here are a couple more things to consider -

Is you current interest only mortgage deal a 'holiday let' one? You mention your current deal will expire soon, if renewing I would guess that the lender would want to see some good accounts showing a profit for the last few years but I understand the cottage hasnt been let while being refurbished? If its not a holiday let mortgage then it would need to be changed to one before you start trading

Have you complied with all the new Fire Regs during the renovation such as fire doors, interlinked smoke alarm system, thumb turn quick escape locks on front/back doors?

Also be aware of cottage companies promising a huge amount of bookings, often the reality is that once you have signed up they vastly discount your prices to get bookings and therefore eat into any of your hoped for profit. These companies also have very costly exit fees and you may find that you are tied to them for 2 years minimum

I know the going rate for changeover costs can be high in some parts of the Country but please remember that you need to employ the best person to do the job, not only do they need to clean to the highest standards they will also need to be the person who doesnt just clean, they need to test the fire systems, report any damage to you so that you can arrange for this to be repaired within a few hours before the next guests arrive. You also need to know what their backup plan is for when they go on holiday or are ill, I cannot emphasise how important they are to the success of your business

You will need 3 sets of bedding, 1 on the beds, 1 in the wash and 1 set for emergency changes and be prepared for the bedding to be replaced often, suntan lotion causes yellow stains on light coloured bedding and its nigh on impossible to wash out!

These are just my instant thoughts and I am sure there are things I havent mentioned but my personal opinion is that if I were in your situation I would put the property on the market now and get it sold before your mortgage deal expires.

Finally, you may wish to join a very helpful facebook group called Holiday Let Owners Help & Chat whose members have so much experience to share and I am sure some of them may be in the same situation as you and can offer some positive constructive advice

@soupfiend for many particularly in recent times it’s less hassle to invest in other vehicles.

Why not let it as an actual home? The more people like you buy houses as a way to make money, the harder it is for locals to find a place to live.

There's no way you can know if he's making a profit or not. I have no idea how much things like commercial business (managed to spell it) rates, commercial rubbish collection, 3rd party liability insurance actually cost.

People saying you can pay cleaners £15 an hour need to think carefully about what they're actually saying. Cleaning is hard physical work.

It may not seem like it if all you do is clean your house to your own standards. Imagine what it must be like to do it day in day out, all day long, and working to other peoples standards. Washing all the sheets and towels, then ironing sheets and towels, making beds, setting out the furniture in just such a way. Ask anyone who has worked as a cleaner in one of the hotel chains, it is brutally hard work for very little money.

Whilst £174 sounds a lot, I'm trying to imagine how long it would take me to entirely clean my house to a really high standard, change all the sheets / towels and then wash and iron them all. I'm coming to the conclusion that this would pretty well be an all day job.

If I was doing this for someone else I would have to drive to their house in a car that had to be taxed, insured (via a policy that allows business use), fueled, maintained and paid for. The time I spend driving is part of the job. I would also have to pay tax, national insurance, contribute to a pension fund and find a way to save enough to have an occasional holiday. Suddenly £174 doesn't sound such a lot.

(Quoted in error - ignore)

Whilst £174 sounds a lot, I'm trying to imagine how long it would take me to entirely clean my house to a really high standard, change all the sheets / towels and then wash and iron them all. I'm coming to the conclusion that this would pretty well be an all day job

But this is a house with no possessions other than basic furnishings and kitchen supplies, that is cleaned to a good standard once or twice a week so isn't actually ever that dirty.

The actual cleaning will probably take around an hour or two and a similar amount for the hands on part of the laundry. If the OP has a laundrette or even a commercial laundry nearby, which is likely if it's a holiday area (there's one on an industrial estate near me and I'm not in a holiday area but am on the edge of a large city that will get some leisure tourism as well as people staying on business) it might be cheaper to pay them to clean and press the bedding.

Three years is a long time for a renovation. Would you make your money back if you sell it now?

You really think it takes an hour to clean a holiday cottage? It takes 3 hours to do my one bed cottage. It has to be immaculatel, so it's a deep clean every time. All furniture pulled out, skirting boards, oven, fridge. The outdoor furniture has to be cleaned, plants watered, windows cleaned. Coffee machine taken apart and cleaned.

Ironing is 30 mins per bedset, but you often get almost to the end and find a tiny stain so you have to start again! It's not an easy job.

If the changeover is done by a proper company and not Mrs Miggan's from down the road doing a bit of cash in hand work, then they'll be VAT registered, so £29 of the £174 is VAT, leaving them with only £145 to pay wages, employers NIC, workplace pension, holiday pay, admin/overheads, etc not just for the cleaners but for the admin/management too and also the costs of an office/base.

Professional changeover firms don't just clean, they'll also be checking inventory, i.e. numbers of glasses, cups, crockery, cutlery, etc., and ticking off all the other stuff such as corkscrews, pans, scissors, and restocking as necessary. Also maybe watering plants (inside and out), litter picking the garden, etc. Also checking things over such as changing blown light bulbs, resetting the central heating timer/controls, checking TV remote control batteries are working, etc.

There's a LOT more to a professional changeover than just running around with a vacuum and cloth and making the beds!! Standards are very high these days and customers won't put up with anything less than perfect, and if the owner doesn't achieve that standard, they'll get bad reviews which will affect future business.

A profession firm will also ensure it's actually done between guests as they'll have several staff available "On call" to cover illness etc. If you go cheap and get Mrs Miggans to do a cheap cash in hand job, you're absolutely buggered when she doesn't turn up or calls in sick and as the OP says, she's not close enough to go and do it herself! So how would you get someone else to do a changeover at short/no notice! There's a reason why people pay more for professional firms!!

So your annual costs are £29,424 and you could get revenues of £25-35k. So very good chance you will at least break even.

I would stick with it. A holiday cottage isn’t about a passive income stream in the early years, it is about building equity in a cottage for free.

The holiday cottage let rates will increase faster than your other costs, so over time you will get a bit of net profit. Ideally you’d want to be in break even to tiny bit of profit to maximise the tax shelter of building a nice nest egg in a property that you’d sell later on to release the funds…or gift to a child.

I think it is shocking the only person not allowed to make a bit of money is the cleaner- the one person doing most of the work on the cottage. I don’t think her rate is ‘taking the piss.’ Cleaners are underpaid as it is. Besides you will ‘earn’ far more than her by the annual increase in equity as the value of the cottage goes up, for not doing much of anything.

You have set it up to be self running because of your day job, totally understand, so you won’t get the sweat equity bonus. But I think it is still a viable investment.

I wouldn't factor in the mortgage tbh. It's like paying into a savings account. It's not money lost, its equity in a sellable property.

I'd be looking for a cheaper cleaner, that's an absurd cost.

Interest only mortgage.....no equity.

Another point is that from April 25 the special/beneficial tax rules for holiday lets is being scrapped so the "normal" letting rules apply. The biggest issue with this is that mortgage interest is no longer an allowable expense so isn't deducted from income when calculating taxable profits. Instead you get a 20% basic rate tax deduction on interest. Sounds the same, but it's not! It means taxable income could breach the £50k higher rate threshold (especially as the OP is employed full time elsewhere) meaning some profits are taxable at 40% with only a 20% reduction for interest, which may mean paying tax even if the "income less expenses" shows a loss! Worse is that is may also cause a partial/whole clawback of child benefits if the OP is claiming and total income goes over the new threshold of £60k.

The same rule change also means higher capital gains tax rate upon eventual sale (assuming a gain is made) as the lower "business" assets rate would no longer apply.

Must admit, we're seeing a fair amount of our clients stop their furnished lettings and reverting to residential long term letting or selling up as the market is indeed saturated in lots of places, far more competition, higher standards demanded by customers, and the tax change is a real deal breaker for many!

@Nottherealslimshady

I wouldn't factor in the mortgage tbh. It's like paying into a savings account. It's not money lost, its equity in a sellable property.

The OP said it was an interest only mortgage, so, no, nothing is being paid into a kind of "savings account" nor equity, as the capital balance of the borrowing remains the same!

Only if the value of the cottage stays the same. Tell me, where in the U.K. have property values had a 0% increase over 5yrs?

But the LTV does not. As the property increases in value, the equity owned by the OP increases. The renovations likely gave the equity a boost as well.

I also can't get over £174 to turn over the cottage ! How many hours work is that for ?

What are you getting out of owning this cottage? If it’s stress and very little reward then I’d sell it.

Even relatively small things affect it. If you run a holiday let and have to drive to it, will a normal car insurance policy cover it? How much is a policy that allows business use?

Years ago someone at a University I worked for gave a seminar speaker a lift to station. They had a crash, not too serious, but insurance company point blank refused to pay out as vehicle was being used for work. Not much damage, so financial hit didn't seem huge at first. However, insurance company cancelled policy and point blank refused to renew it.

Try getting car insurance when you have a rejected claim and a refusal to renew a policy on your record. Possible via specialist broker if your prepared / can afford to pay serious money.

Always been very sensitive to these things since then.