Pros and Cons of Holiday Cottages vs Buy to Let Advice Needed

[Merrin]

We are going around in circles a bit with this.

We have a choice of buying either a holiday cottage (to let and use) or a buy to let. We keep going around and around with the various merits of each! Please help me brain storm these options :)

haven't actually done either yet, but am going for the buy to let. Main reason being that I have friends who own a holiday cottage and they are struggling a little with it.

do the sums on 15 weeks occupancy, remembering to factor in cleaning, replacements, agents fees etc etc.

buy to let obviously brings in a lot less per month but once people are in, they will hopefully be there a while. You also need to budget for insurance (including legal expenses and rent guarantee), maintenance, gas checks, agents fees etc etc.

Yes, definitely more hassle with a holiday cottage but we would also get some immediate benefit, although of course that means less income. Its also so variable with finding people to stay in it, what if no one wants to?

But, we would have a bold hole to go to, a place for childhood memories to be made.

A buy to let makes much better financial sense. It may be less stress and it may be more secure long term.

There is the difference in tax as well.

What kind of buy to let are you looking at special subject?

a cheap but clean, tidy and modern house in the nearest town, where rental is currently active.

doesn't make a fortune but inflation-proofs savings and diversifies.

you can spend a lot of time in various holiday cottages for what buying your own will cost you. And I wouldn't worry too much about childhood memories, if they remember at all it will be the holiday and you, not the place.

Hi

The most important thing of all is to make sure you look at all of the associated costs of buying to let vs a holiday home and then maybe decide on whether the difference is worth the lifestyle benefits (sounds like you might have done this anyway).

Speak to a recommended mortgage broker really soon, they will give you free advice. Holiday home mortgages can often be based on your income whereas buy to let is viewed more like a businesss so your income isn't so important as it's the rental income, not your income that covers the mortgage repayments.

Obviously using a holiday home yourself in the school holidays really cuts into your profits and managing agents on holiday lets usually charge around 25% (keep an eye out for extras for change over days too) whereas a managing agent for a buy to let will charge around 10%.

It also depends enormously on where you live in the country. A holiday home will be very profitable in the South West but it isn't a great area for buy to let profits but the North East can be good for buy to let but less profitable for holiday lets. If you have an agent looking after it though neither a buy to let nor a holiday home needs to be local to you. As a general rule the nicer the area, the less profit you will make from rental income each month. If you know where to look it is relatively easy to find buy to let properties which will give you a 5-10% return on your investment each month after all costs. Capital growth is then a bonus. If you buy in a very low income area you can get more but it depends on the type of tenants you're willing to take on.

For a summary of all the costs of a buy to let there is a free spreadsheet to download here www.thebroadgategroup.com/buy-to-let-advice/
Most of the costs will be similar for a holiday home but you will need to increase the management costs as explained above. It would be wise to speak to some holiday let agents in the area you are thinking of buying in to see what they charge. You may also need to pay more insurance on a holiday let as it will be unoccupied for extended periods.

Sounds like you're torn between your head and your heart. If it were me i'd get a very profitable buy to let and use the proceeds to pay for great holidays!

Good luck, it's a big investment so make sure you work out all the figures before taking the plunge!

A holiday cottage is a mixture of business and pleasure, which could go wrong. You will have a queue of family & friends trying to get it for free or at mates' rates. You will also be very dependent on the British weather.

I like michdi's idea of having a boring, reliable BTL to generate funds for fancy holidays. I admit that I am biased because I don't like the idea of going back to the same place again and again and again for holiday: there's too much world out there to see! Also, a holiday is meant to be fun and relaxing - it would spoil it to be forever thinking "I must mend that downpipe" or "this place needs re-painting".

Mind you, I could be persuaded to give the idea a go if the holiday cottage was abroad. Actually, we have had some lovely holidays in slightly off-the-beaten-track destinations. They might be a bit off the main tourist map (no problem if you hire a car) but were very handy for the weird sort of places that cheapo airlines fly to.

I would go for a BTL every day of the week over a holiday cottage for the same reason as most have said above.

Plus, if you play it right it will eventually become your pension. The other thing you should consider (just to confuse you even further) is whether you should buy two BTL's so that if you have a void period with one the other should cover some of the empty property costs.

I'm just about to embark on BtL, and my friend is moving and currently deciding whether to let out her home on a short-term tenancy or as a holiday place, so we have been talking and thinking about pros and cons a lot.

As well as the ones already mentioned, there is the sheer amount of work involved with letting a holiday home. A minimum of 15 (and ideally more like 40) 'contracts' each year, rather than just one (or two, if you are unlucky). Each contract means a round of booking, cleaning, greeting/key handover, cleaning, checking for damage, etc... If you use a holiday let agent, you are looking at a 20-25% fee, which will probably eat all/most of your profit, unless you have a lot of capital and a tiny mortgage.

Other costs are higher too, including insurance. Tenants are generally responsible for contents insurance, whereas you'd have to provide it for holiday-makers... And they might be less careful, too.

Oh yes holiday cottage must be within two hours travel as there are times when you have to go there at very short notice for example cooker breaks with tenant in there need to deliver new cooker.

Oh I typed extensive reply that has been lost with lots of detail with my experience of both. Will do again later.

Also outside of city centres you generally don't need to furnish a btl.

Thanks so much for all your input!

I think I am confusing two quite different creatures! Holiday cottages seems to be an indulgence, any money you make keeps them ticking over and pays the rates. Buy to Let are either a long term investment or, if the mortgage is small, a source of income.

I am decided, investment first and if it goes well, indulgence somewhere down the line.

Am thinking of an unfurnished one bedroom flat near the railway station in our nearest city. Flats are not ideal, a two or three bedroom house would be better, but they are very expensive (am in the South).

"As a general rule the nicer the area, the less profit you will make from rental income each month."

Thank you for this interesting piece of advice. I have been looking at the best areas that I can afford, my thinking being that the long term value will increase and the property will hold its value better. It seems logical to get the best area and property you can. Why is there more profit in a less desirable area? Is it the demand for rental?

Merrin,
I have bored people with this before, but my friend has great returns on buy to let. She specialises in one bedroom flats in locations that are only OK. No school catchments to worry about.
She keeps it all very simple and doesn't do much to them other than let them for very good returns.
Another friend has up market properties done to a high standard and is struggling.
I think there will always be a market for economy lets.

I'd imagine BtLs in university towns/cities were a pretty good investment. Around here, you can get a 5 bed (i.e. 4 bed/2 reception!) house for £120-140k, and get £500/week all inclusive, or £400/wk rent only.

Where I am you can get a one bed flat for £150-200 and get 700/month.