Private rental or holiday let?

[UbercornsGoggles]

We bought a house needing renovation 5 years ago, part of the renovation was to turn it back to 2 semi detached cottages after a previous owner turned it (badly) into one house.

In classic house renovation style we had a child in the middle of it all, and now find ourselves outgrowing the property. We're going to have to find something bigger for ourselves, probably rental, but want to keep not sell our existing properties. We live somewhere that is good for tourism so have the option of holiday lets rather than private rental, but given we have a largeish mortgage to cover I'm more reassured by the regular income of a private rental.

Just wondering if others have been in a similar situation and how they decided which route to follow.

As a starting point, could you look on Airbnb for properties near you to see how often they are booked? You can do this by checking the date on reviews. It might give you an idea of what take up would be for holiday lets and the income you could expect, to see if that would be a better option financially.

You need to look at the incomes and costs for each. As a holiday property not only are your costs going to higher, but someone is going to need to turn the property either yourselves or paying a house keeper.
You will need to furnish and equip a holiday property so upfront cost - remember the nicest ( get repeat business) properties are furnish with new matching furniture.

A holiday letting is a time consuming business. It's not "passive" like a long term domestic letting. You have the bookings & admin to sort out, cleaning & maintenance, continual upkeep/replacement of all internals (furniture, equipment, soft furnishing, etc). Do you have the time and inclination to run it properly? If not, then just let it residentially - a lot simpler and less time consuming. But, a holiday let, run properly, in a decent location has the potential to earn you a LOT more money, but it's not easy money. You also have to evaluate whether it's worth using letting agents for the holiday letting - they can take up to 25% of the letting income, but it may be well worth it if they can get your occupancy much better than you could do yourself. I have a client in the Lake District with several holiday apartments - she was adament she could run her own website, deal with bookings etc herself to avoid the 25% specialist Lake District holiday website fees - after a few years, she had to relocate for work, so reluctantly signed up the website to deal with bookings - she expected to lose money, but in fact, the bookings were so much higher, she ended up making a lot more profit, even despite losing 25% in fees.

You will need to furnish and equip a holiday property so upfront cost - remember the nicest ( get repeat business) properties are furnish with new matching furniture

That's not always true. Ours is furnished with a mix of vintage and new, and it doesn't all match.

Looking on Airbnb, as a pp suggested, is a good idea. I would also look at holiday letting agents' sites for an idea of what your likely rate of occupancy would be if you do go with an agent.

Looking on Airbnb, as a pp suggested, is a good idea. I would also look at holiday letting agents' sites for an idea of what your likely rate of occupancy would be if you do go with an agent.

That will give you a rough idea, but it's the owners' ability as regards marketing which is just as important. Some owners, who are internet savvy, could market their property just as well as an agent, i.e. with a top quality website, excellent SEO, lots of quality pictures, comprehensive descriptions, online booking calendar and integrated payment system. I'd say it's the owners who would struggle to do that (either themselves or by sourcing a good web designer) that are best placed to use agents instead. My client "thought" they were good in that respect, but their own website was actually quite shoddy and it was one of those "phone for availability" ones, which put people off, hence why they did so much better once they put it with a proper agent. It is quite possible to have similar occupancy if you do it yourself professionally, but you need to be realistic as to you own time and abilities to do it - hence why I said it's a time consuming business to run.

Sorry, lost track of what I was trying to say there. I was trying to say that you have to look at lots of others, both private and agents, to get a gist of occupancy levels, prices, etc. It's not as simple as saying letting agents will always lead to higher occupancy. (And some agents are pretty poor too, so you have to compare agencies against eachother too).

Unless you are staying local and have a reasonable amount of time to put into last minute repairs/emergencies, I'd go for a long term rental.
We have a flat that used to be a short let but the agency we used became extremely useless (telling us it wasn't lettable, mainly) and we are not local so we decided to switch and go for long term letters.
The agency found out we were going for long term lets and one of the employees asked if we'd be interested in selling. We assume they actually thought it was lettable, but not if they had to give us any money for it.

(We are not local to the flat - that's why we decided to switch - as we were relying on useless agencies.)

Holiday rental is a lot more work than a long term let, and you need to be more 'business'. Like - who is your target market, how do you advertise to them, if your property set up to attract the right market, how will your dynamic pricing work, what is your online presence, booking platform, how will you interact with potential customers, how will you provide support during bookings, changeovers etc etc etc

Private rental, whilst not hassle free, is a lot less work generally.

I have a holiday house which is let and a long term rental house. There are costs for both.

The holiday let is running by an agent for 20% fees. They can do a finding fee and then you run the check in and check out and cleaning etc. You have to be available if something goes wrong. As we live 4+ hours drive away, our house is fully managed.

I think you need to establish what the quality of holiday homes is in your area, rental charges and likely occupancy rates. Are you swish modern with every convenience (wi fi, smart TVs, high class bathrooms and kitchen) or cosy and rustic? You don’t need new everything but you must have it looking attractive and super clean. Who is going to look after the garden? Are you business rates and what about refuse collection charges for holiday keys?

If you do a longer let, the tenants do the garden and you really just make any repairs. You must be detached from the house in terms of loving it. Few tenants will care for it in the way you do. You can also get rent arrears. Are you going to find the tenants, do the financial checks and the gas check? Are you letting unfurnished? If furnished, what about fire regulations? What about white goods? You need to speak to agents about what is the norm in your area. I use agents for my house and it’s 12% for all services except maintenance, finders fee and the inventory which is very detailed. Are you going to do this yourself? A detailed inventory is a must.

I view my houses as a business. However when I visit my holiday house and see things have been taken (table cloth, cutlery, a garden chair) and all sorts of crockery and glasses have been broken it can get disheartening. It’s not a cheap let either! Even the Pom poms were pulled out of a cushion cover! Go into it with your eyes open!

Thank you everyone for all your replies, it is very useful to get your perspectives.

In terms of long term rental I already have a house I have let for more than 8 years so I'm pretty savvy on that front and know what I'm in for there. The only real concern I have on that score is garden maintenance - one of the houses has a large garden that we struggle to keep on top of, so a tenant may end up leaving it to go wild (even with the usual gardening clause in the lease). But this is also a concern with a holiday let - we'd need to find a good reliable gardener, and it won't be cheap.

I know that some local holiday cottages get 70% occupancy, which would convert to a lot of income, but the cleaning, maintenance and gardening costs would be high, and we would use an agent for bookings so another cost to consider.

I think we need to do some number crunching and then figure out if the higher holiday let income would offset the other costs enough to make it worth it.

What is the reason you don't want to sell - is it that you will get good capital growth? Have you factored in income tax implications (would the income take you into a higher marginal rate for example). Are you likely to want to buy another family home - in which case the SDT will be higher. Treatment of mortgage interest is changing with regard to rental properties too, again a tax implication. Unless the capital growth is likely to outgun all those expenses is it really worth hanging on to it?

In addition to all the very good points above - is it currently on a residential mortgage? Most residential lenders will give consent to let on a normal assured shorthold tenancy, but I don't think there are any who'll do it for a holiday let, so you'll need to remortgage and you'll be looking at around 3.5%. Interest isn't affected by the new rules for furnished holiday lets though, you can still offset 100% against income, and you can also split the income in a different proportion to ownership which is helpful if one of you pays higher rate tax.

We have a mortgage on a holiday let. It’s no big deal - at the moment.

The bigger problem here is CGT if you have two houses and sell one. Sale of the non family house will be subject to CGT so bear that in mind.

Don’t assume you will get 70% occupancy. Where our house is, owners and extended family use the houses and to an outsider it appears to be lettings because it looks booked up on the agent’s web site, but it’s not income. 25 weeks would be good but 35 weeks is high. If some get 70%, what do the other, less booked up ones, get? Also, you do not yet have any repeat business. They probably do. I would be cautious about a high level of bookings to begin with. We have been approached for a long term holiday let but they want a 10% discount. You do have to be flexible.