Buying a holiday let - Any advice?
Discussion
I'm considering buying a holiday let, but don't know too much about the mechanics of such thing.
We live about 30 mins away from an extremely popular tourist destination, a place I know very well. It has always been popular, but over the last 15 years has grown from mostly seasonal to flat-out all year round visitors.
I have done a bit of research, and I could buy a small but nicely renovated freehold cottage, located in the town, that already operates as a holiday let, for around £250k (This would just be a typical example, there are plenty of places for sale and they turn over fairly quickly).
We have £130k spare that we could put down, and mortgage the remaining £120k. Various mortgage calculators suggest that over 20 a year term, at current rates, the mortgage would be £750 a month. I would expect to be able to pay it off faster than 20 years by throwing extra money at it when I can.
Cottages/rentals such as the one I'm using as an example let for around £900-1000 per week, and this price is steady all year round.
I have spoken to a couple of local lettings agents and they said that occupancy for a typical let is around 65-70%, so about £30,000 income per annum for a quieter year.
The (very rough) maths seem to be as follows:
£19k per annum outgoings for mortgage, council tax, utilities, and cleaning/letting fees
£30k income.
The potential profit seems to be around £10k per annum, and of course the big prize is that after 20 years the property is paid for, plus it would be a nice place for us to retire to, or use ourselves (we are about 25 years from retirement)
I also view the £10k per year as a bit of a 'worst case' as hopefully mortgage rates would fall in future, and weekly rentals will continue to rise as the years pass.
Maybe I'm looking at this from an incredibly naive perspective, so would appreciate input from those who have holiday lets, or anyone with any knowledge.
My biggest worry is that the local authority or the government decide they will eradicate holiday or second homes via punitive council tax or other measures, but I guess even if they did, it's still a house that can be sold to someone who wants to live there.
I wouldn't be precious about a property like this. I would not be crying over any damage to 'my house' or anything like that. I would happily let it get used heavily without me worrying about it, but would try to make sure it was kept in presentable condition for guests.
Any help appreciated.
(Mods, please move if this would be better in Business, Finance, or Homes. I really don't know what would be best)
We live about 30 mins away from an extremely popular tourist destination, a place I know very well. It has always been popular, but over the last 15 years has grown from mostly seasonal to flat-out all year round visitors.
I have done a bit of research, and I could buy a small but nicely renovated freehold cottage, located in the town, that already operates as a holiday let, for around £250k (This would just be a typical example, there are plenty of places for sale and they turn over fairly quickly).
We have £130k spare that we could put down, and mortgage the remaining £120k. Various mortgage calculators suggest that over 20 a year term, at current rates, the mortgage would be £750 a month. I would expect to be able to pay it off faster than 20 years by throwing extra money at it when I can.
Cottages/rentals such as the one I'm using as an example let for around £900-1000 per week, and this price is steady all year round.
I have spoken to a couple of local lettings agents and they said that occupancy for a typical let is around 65-70%, so about £30,000 income per annum for a quieter year.
The (very rough) maths seem to be as follows:
£19k per annum outgoings for mortgage, council tax, utilities, and cleaning/letting fees
£30k income.
The potential profit seems to be around £10k per annum, and of course the big prize is that after 20 years the property is paid for, plus it would be a nice place for us to retire to, or use ourselves (we are about 25 years from retirement)
I also view the £10k per year as a bit of a 'worst case' as hopefully mortgage rates would fall in future, and weekly rentals will continue to rise as the years pass.
Maybe I'm looking at this from an incredibly naive perspective, so would appreciate input from those who have holiday lets, or anyone with any knowledge.
My biggest worry is that the local authority or the government decide they will eradicate holiday or second homes via punitive council tax or other measures, but I guess even if they did, it's still a house that can be sold to someone who wants to live there.
I wouldn't be precious about a property like this. I would not be crying over any damage to 'my house' or anything like that. I would happily let it get used heavily without me worrying about it, but would try to make sure it was kept in presentable condition for guests.
Any help appreciated.
(Mods, please move if this would be better in Business, Finance, or Homes. I really don't know what would be best)
EmailAddress said:
That's not enough yield.
Who will be managing it, dealing with client change over, fixing issues 24 hours, on call for constant minor problems.
Have you factored a five yearly refresh, ten yearly 'rebuild' of interior (goods, facilities etc.)
When you say not enough yield, what would be the answer to this given that the purchase prices of the properties are what they are, and the rental income is also more for less fixed given the local market rates?Who will be managing it, dealing with client change over, fixing issues 24 hours, on call for constant minor problems.
Have you factored a five yearly refresh, ten yearly 'rebuild' of interior (goods, facilities etc.)
I would put it with one of the local long-standing cottage rental companies. They deal with cleaning, client change over, marketing, bookings, have a 24hr responsive maintenance person if required (and obviously bill the owner for repairs) etc. I wouldn't be doing the lettings or changeovers myself.
I'm not too concerned with the possible profit every year, but more the long term goal of having it paid for after 20 years, and then obviously the annual profit increases dramatically once the mortgage is gone.
If the 'up to' £10k per annum profit just sat in an account for the property, and was used to pay for a refresh as required and new kitchen/bathroom that would be fine.
Mont Blanc said:
When you say not enough yield, what would be the answer to this given that the purchase prices of the properties are what they are, and the rental income is also more for less fixed given the local market rates?
I would put it with one of the local long-standing cottage rental companies. They deal with cleaning, client change over, marketing, bookings, have a 24hr responsive maintenance person if required (and obviously bill the owner for repairs) etc. I wouldn't be doing the lettings or changeovers myself.
I'm not too concerned with the possible profit every year, but more the long term goal of having it paid for after 20 years, and then obviously the annual profit increases dramatically once the mortgage is gone.
If the 'up to' £10k per annum profit just sat in an account for the property, and was used to pay for a refresh as required and new kitchen/bathroom that would be fine.
Do not underestimate void periods for whatever reason. You maybe located in an area where tourists do not automatically expect great weather. I would put it with one of the local long-standing cottage rental companies. They deal with cleaning, client change over, marketing, bookings, have a 24hr responsive maintenance person if required (and obviously bill the owner for repairs) etc. I wouldn't be doing the lettings or changeovers myself.
I'm not too concerned with the possible profit every year, but more the long term goal of having it paid for after 20 years, and then obviously the annual profit increases dramatically once the mortgage is gone.
If the 'up to' £10k per annum profit just sat in an account for the property, and was used to pay for a refresh as required and new kitchen/bathroom that would be fine.
Maintenance and repair can add up especially when through a third party like letting agents. Tenants may not be quite as careful as an owner occupier although many are. Ensure the call out cover is timely.
Many local authorities are trying to restrict this sort of ownership so anticipate inflated council tax.
Calculate what is the worse case occupancy that you could afford.
Ensure you visit similar ones that are available now and maybe stay for a day or two. Read tenants comments.
Good luck.
EmailAddress said:
Apologies, I mis-read and jumped in.
I didn't comprehend the timescale and finances correctly.
I'll come back later if I can add anything.
Just be mindful that trying to keep occupancy high while being a step removed can sound great but you may go through a few agents before you find one that you vibe with and matches your level. i e what level of autonomy you hope for when it comes to dealing with issues independently, and then billing you.
As well as building a relationship with a handyman, rather than endless call out costs. The agent should be all over this but it can end up being a bit incestuous and backhanded.
Take inspections very seriously.
Good luck.
Thank you. Appreciate your comments.I didn't comprehend the timescale and finances correctly.
I'll come back later if I can add anything.
Just be mindful that trying to keep occupancy high while being a step removed can sound great but you may go through a few agents before you find one that you vibe with and matches your level. i e what level of autonomy you hope for when it comes to dealing with issues independently, and then billing you.
As well as building a relationship with a handyman, rather than endless call out costs. The agent should be all over this but it can end up being a bit incestuous and backhanded.
Take inspections very seriously.
Good luck.
I think you’d be better off investing your £130k as you should double that amount over 10 years and double it again over the next 10 years, meaning a lump sum of £500k+ in 20 years, more if you add to the investment pot. This assumes you reinvest any gains (compound growth) and make the most of your ISA eligibility.
What do you think a £250k holiday cottage would be worth after 20 years less 20 years of maintenance cost? Plus how much capital gains will you pay when selling to realise the cash value? Capital gains in second homes is presently 28%.
A lot of councils are increasing council tax for second homes which is another cost you need to build in. Then there is the hassle of being a landlord even if you employ and agency.
Not for me I’m afraid.
What do you think a £250k holiday cottage would be worth after 20 years less 20 years of maintenance cost? Plus how much capital gains will you pay when selling to realise the cash value? Capital gains in second homes is presently 28%.
A lot of councils are increasing council tax for second homes which is another cost you need to build in. Then there is the hassle of being a landlord even if you employ and agency.
Not for me I’m afraid.
Take your expected costs. Multiply by 2.
Take your expected income. Divide by 2.
If you are now happy with the numbers, crack on.
The reality is holiday lets usually cost a lot more to operate than you may think long term and the income is often much less than you may think.
People don't think long term.
That bathroom. "It will last 20 years". No it wont. 10 if you are lucky, more like 6 or 7.
Carpets, every 4-5 years.
Cleaning "only" £80 per visit. In 3 years its £150 per visit...
Etc
IYSWIM.
That's before Airbnb etal bend you over backwards.
Take your expected income. Divide by 2.
If you are now happy with the numbers, crack on.
The reality is holiday lets usually cost a lot more to operate than you may think long term and the income is often much less than you may think.
People don't think long term.
That bathroom. "It will last 20 years". No it wont. 10 if you are lucky, more like 6 or 7.
Carpets, every 4-5 years.
Cleaning "only" £80 per visit. In 3 years its £150 per visit...
Etc
IYSWIM.
That's before Airbnb etal bend you over backwards.
2 GKC said:
Wait and see what Reeves does. I think holiday and second homes will be considered low hanging fruit for a rinsing under Labour.
Absolutely this. There are already rumours circulating concerning the introduction of property taxes and / or increased council tax rates (especially on second homes). Capital gains tax percentages could be brought in line with income tax, too.
I had a holiday let 20 years ago. Motivation to buy was to have somewhere near the coast where we could holiday as a family and the decision to let out was to hope it would wash its face financially. Well it did back then but the changes in taxation and FHL allowances would mean I would struggle today.
20 years ago I got a council tax holiday while I refurbished the property; you wouldn't get that today.
Council tax was just the normal rate; it it hasn't changed already I'm sure it will to 2 or 3 times standard residential rate.
All costs were deductible against income providing the property was rented out at least 9 or 10 weeks p.a and available for let for at least 10 months a year (I may have got the detail wrong but providing you were serious about FHL the thresholds were easily achieved). I'm not sure but I think those thresholds have increased significantly already and I know that today my old property would fail to qualify (Swanage area, letting season probably 16-18 weeks per year tops).
As has been mentioned expect the new Labour government to hammer second homes/FHL's.
Would I do it again....no. I'd put the money in to ISA's and a SIPP.
20 years ago I got a council tax holiday while I refurbished the property; you wouldn't get that today.
Council tax was just the normal rate; it it hasn't changed already I'm sure it will to 2 or 3 times standard residential rate.
All costs were deductible against income providing the property was rented out at least 9 or 10 weeks p.a and available for let for at least 10 months a year (I may have got the detail wrong but providing you were serious about FHL the thresholds were easily achieved). I'm not sure but I think those thresholds have increased significantly already and I know that today my old property would fail to qualify (Swanage area, letting season probably 16-18 weeks per year tops).
As has been mentioned expect the new Labour government to hammer second homes/FHL's.
Would I do it again....no. I'd put the money in to ISA's and a SIPP.
Im not sure i would buy a holiday let if you cant buy outright.
There are to many risks, unknown interest rates,, unknown council demands on second home owners.
Its not even guarantied that house prices will rise much in that time.
the money would probably be better invested else ware.
Even without borrowing its not a definite income maker.
Most people i know who have second homes are off loading.
There are to many risks, unknown interest rates,, unknown council demands on second home owners.
Its not even guarantied that house prices will rise much in that time.
the money would probably be better invested else ware.
Even without borrowing its not a definite income maker.
Most people i know who have second homes are off loading.
We’ve just sold one of two we operate as the tide is turning and there are strong rumours of tax changes and registration schemes.
Note that all the agencies take a minimum of 21% inc vat just to let the place.
Laundry is about £50 a week, cleaning is about £100.
You will need a holiday let mortgage, few about mainly 6.5% upwards.
In our area you pay 3x council tax for a second home, it gets zeroed for a holiday let after a defined time and lettings achievement - but it does mean letting all year round or you drop back to council tax multiples.
From day 1 by law you must have commercial waste collection for the let.
The property must be fully compliant with all safety regs including fire, must have Mains interlinked smoke and heat detectors.
Biggest risk is the Labour following through with abolishing the furnished let tax regime, in which case you’d pretty much pay tax on a large proportion of all income pre costs - which will make it pretty much untenable.
To summarise wrong time to be doing this - it’s why so many are selling up.
Note that all the agencies take a minimum of 21% inc vat just to let the place.
Laundry is about £50 a week, cleaning is about £100.
You will need a holiday let mortgage, few about mainly 6.5% upwards.
In our area you pay 3x council tax for a second home, it gets zeroed for a holiday let after a defined time and lettings achievement - but it does mean letting all year round or you drop back to council tax multiples.
From day 1 by law you must have commercial waste collection for the let.
The property must be fully compliant with all safety regs including fire, must have Mains interlinked smoke and heat detectors.
Biggest risk is the Labour following through with abolishing the furnished let tax regime, in which case you’d pretty much pay tax on a large proportion of all income pre costs - which will make it pretty much untenable.
To summarise wrong time to be doing this - it’s why so many are selling up.
where in the country are you?
we live near the North Norfolk coast and the sale of small 2 up 2 down ex fishermans type cottages are dead in the water.
The holiday let industry around here is drying up. We know a few owners and they are struggling. Why rent something up here, when you can go abroad for less?
we live near the North Norfolk coast and the sale of small 2 up 2 down ex fishermans type cottages are dead in the water.
The holiday let industry around here is drying up. We know a few owners and they are struggling. Why rent something up here, when you can go abroad for less?
Really interesting thread as my brother and I have a similar opportunity if we want to grab it. Personally I’ve been looking at places in France as it gives a nice getaway for us and hopefully a modest income whilst the value creeps up over time.
Not even sure if post-Brexit it’s feasible to buy property in Europe but my sister in law is French so that might be a useful factor.
Not even sure if post-Brexit it’s feasible to buy property in Europe but my sister in law is French so that might be a useful factor.
miniman said:
Really interesting thread as my brother and I have a similar opportunity if we want to grab it. Personally I’ve been looking at places in France as it gives a nice getaway for us and hopefully a modest income whilst the value creeps up over time.
Not even sure if post-Brexit it’s feasible to buy property in Europe but my sister in law is French so that might be a useful factor.
Values in France don't really creep anywhere...Not even sure if post-Brexit it’s feasible to buy property in Europe but my sister in law is French so that might be a useful factor.
Thanks to everyone for the advice!
It wasn’t a ‘get rich quick’ scheme we were wanting, nor were we planning to be emotionally attached to any property we bought.
This was a something to pay itself off over 20 years and then take stock after that, either cash the property in or enjoy the extra £20k per year (or whatever) it would generate in profit.
I thought this might be the most sane thing to do with a spare £130k but thanks to the range of opinions in this thread, maybe not!
It wasn’t a ‘get rich quick’ scheme we were wanting, nor were we planning to be emotionally attached to any property we bought.
This was a something to pay itself off over 20 years and then take stock after that, either cash the property in or enjoy the extra £20k per year (or whatever) it would generate in profit.
I thought this might be the most sane thing to do with a spare £130k but thanks to the range of opinions in this thread, maybe not!
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