What Will It Be?
A place in the country? The beauty of the holiday lettings market is that it gives you the chance to choose an investment in a place where you already feel at home. When you are not taking lettings, it serves as a getaway place for you and yours. Unlike the conventional rental market where letting is usually for a six- month minimum period, the holiday market might only give you twenty weeks or so of revenue. However, the revenue you take on these lettings can be three or four times the conventional rate for each week that you have holiday makers in your property. Hence your total return can be as high as twice the normal income that might be expected.
People do have holidays almost anywhere in the country, but this does not mean you should be too casual about where you buy a holiday property. Consider where you enjoy taking holidays. Is this the sort of place that you think would prove popular with other people? Do you want a property in a place that you have always loved or would you prefer this investment to take you somewhere new and interesting that you have never been to before?
Popular locations would include anywhere there is a National Park, or sites of great natural beauty. Coastal towns, fishing villages, provincial market towns that have great architecture or castles, ancient minsters and famous abbeys etc. All these have their appeal as holiday areas and places where people come to get away from it all. In just the same way, many people are attracted to visiting urban areas, perhaps in older cities around the country. Take the example of York. It is an ancient city with a wealth of visitor attractions and gets tourists all year round. A small compact townhouse would rent well, and it could be old or totally modern and still appeal.
A small flat in a suburb of London, provided primarily for the American and Japanese tourist market would do well provided the standard of décor and accommodation were in line with what these visitors expect. Anywhere people take holidays you can invest in property and make a profit.
However, if you don’t like York or London, as in these examples, then don’t invest there. If you would prefer to spend time yourself in the Forest of Dean or the Scottish highlands, then you should really give serious thought to having a property in a location you love personally. You will put more effort into the promotion of the cottage if it is in a place you love, and you’ll know more about the locale, too.
If it is at all possible, buy a property where there is a decent view from the living room and, if possible, from all the bedrooms of the property. People have enough of living in small places themselves and want to feel closer to something special when they are away on holiday. The ‘special’ can be a location relative to the centre of a market town, or be three hundred yards from the beach. Perhaps you can see the seashore and the cliffs from the breakfast room window, or look across the river from the front of the house. People will associate the view with their memories of a good holiday, and a decent view always gets a mention in the promotional literature.
What sort of property do you fancy? Cottage? Lighthouse? Converted monastery? Flat above a retail shop? Farm buildings? Beach villa? Former chapel? Modern flat? There is so much scope for you to have a truly unique building for holiday rental. Shop around by looking in estate agents’ windows, view the small
ads or visit the property auctions in a favoured location. Make contact with the building societies and banks and see what instructions they may have to dispose of unwanted property. Just as repossessions are a good source of immediate profit in the conventional rental market, the same situation applies to holiday properties. While the more unusual property can cost you more to purchase, it can also gain you a premium as much as 10% higher per rental than a standard cottage.
Standard of Accommodation
The most important element in building a positive impression of your cottage is the high quality of accommodation. This means using good quality furniture, a high standard of decoration and the use of fittings and fixtures which serve to complement each other and are in line with the general style and atmosphere of the property.
Remember that penny-pinching in this sector of the rental market will mean you never get repeat bookings and may well result in the better letting companies declining to deal with your property. Furnish it to the standard you would expect when you stay there yourself.
Heating & Services/Safety
An easily operated and well-maintained heating and water supply is essential throughout the property. Even in the summer season, people will want quick heating when the temperature drops. All the furniture in the property must comply with the Furniture and Furnishings (Fire Safety) Regulations. Your waste bins should be non-flammable. Put a powder fire extinguisher and a fire blanket in or close to the kitchen, and install smoke detectors around the property, usually on each landing and in hallways. Your local fire brigade can supply you with literature about the siting of extinguishers and smoke alarms.
Your Holiday Makers
Will you be letting to walkers, climbers and ramblers? If so they can expect a different place than genteel folk on a quiet holiday. Different guests need their own tailored accommodation. For example, it would be a waste of your money to have a beautiful carpet throughout a house for people enjoying country pursuits, if you didn’t also make sure they had the use of a boot room or enough space to take off their footwear.
Will you be providing a romantic country love nest for couples or a place with several bedrooms for a family with children? The key to successful letting of holiday property is deciding what role your cottage will play and what atmosphere you wish to provide for your guests.
Calculating The Financial Return From Your Let
At a simple level this is easily done through multiplying the rental per booking by the number of bookings achieved. However, things are never quite so easy and it is worth looking at various aspects of the letting opportunity in some more detail.
It can be tempting to jump straight into this market and gain the highest price per week with little or no forethought. In the short- term this may be attractive, but let’s look at a profitable approach that will work for the longer term. Select a cottage letting agency that is charging sensible prices instead.
From the total income attained you will need to deduct the commission charged by the agent, the expenses of running the property and any taxes you may be liable for.
General Guide To The Potential Tax Situation
Your allowable costs may include:
- The interest on a loan or mortgage taken out to buy the property or furniture and fittings within the property.
- Buildings and contents insurance, council tax or business rates.
- Professional fees, such as accountancy costs, as well as agent’s commissions, and the charges incurred for regular cleaning and caretaking services.
- Maintenance and upkeep costs, including the redecoration of the property and the purchase of replacement furniture items.
Remember that if your property is available for rentals for a limited period of the year, you should only submit a bill for allowable costs for that proportion of the year in which you receive revenue. If your rental season was March to December inclusive and your family used the cottage for their own use in January and February, your claim of costs would be for ten months or ten twelfths of the bills incurred.
Paying Council Tax or Business Rates
Short Season Of Rental
If your cottage is available to holidaymakers for letting for less than 140 days (this is twenty weeks) each year, then you simply pay the appropriate level of council tax on the property. Speak to your local authority about the category or ‘banding’.
Long Rental Season
With more rentals and a period of availability that exceeds 140 days then the non-domestic business rate is applied to your property. In this case you should make contact with the local Valuation Officer and an assessment of your property for business rates. This is paid as a fraction of a pound. For example, a property might be assessed as being paying rates of £5,000 per annum at a rate of 50 pence in the pound. You would pay £2,500 over ten months at £250 per month.
How To Select An Area For Your Holiday Property
You can select a national company to represent your particular cottage, barn conversion or windmill and have an inclusion within their brochure. It is true that this gives you a national exposure and ensures that tens of thousands of people look at the listing given to your building. But consider this: where do people want a holiday rental: the seaside, the mountains, or in a city? Consider the agent who knows a specific area and enthuses about it. To take the countryside example, consider a National Park that you love. It could be the North York Moors, the Peak District, the Pembroke Coastline, or any other. Every year thousands of holiday makers return to the same place they had a holiday last year or the year before. They will continue to visit an area they love for all sorts of reasons. One reason is that we all feel safe and comfortable in doing the things that are familiar. This thinking works well for holidays. Follow this argument and you may stick with a local agent for your property.
What Is The Area Like?
How far is the nearest cinema, restaurant, public house, church, café, etc? What is the season for holiday lettings? What is traffic like through this village in the summer? What sort of rents can I expect on a small cottage, as opposed to a barn conversion?
Ask the agent for a copy of their Information Pack for landlords. Generally speaking, if their literature for a landlord is of poor quality or seems unfocussed, then you can make a safe bet that they are poor at promoting properties to potential holidaymakers. You are buying a property with the express intent to make a return on your money. Remember this when you are looking at a ‘chocolate-box cute’ property that may not be the best investment, but which is easy to fall in love with.
Things To Look For When Selecting A Holiday Property Letting Agent
The right agent will work closely with you in a way that supports your own views on the rental of holiday properties. They will be looking to a long-term honest relationship with you as the property owner. Do your research thoroughly and ask lots of questions but here is a checklist to help you. The right agency for you and your property will:
- Be patient with you as a new landlord on their books, even when you clearly don’t know the ropes!
- Be charging sensible prices that result in frequent and numerous bookings.
- Pay the deposit monies and rental fees to you as they are received, rather than holding them until after the holiday is completed.
- Not have too many properties on its books. Better to be a regional specialist.
- Have a good booking conversion rate from enquiries. l Will advertise throughout the whole year and not just the peak-season.
- Provide you with a good stream of rental income while also not charging you too high a commission. Expect to be hit with between 20% and 30% charges.
- Know the local area inside out and answer questions from the holidaymakers.
- Be able to provide the cleaning and caretaking staff for your property for welcoming guests upon their arrival, and for cleaning up between rentals.
Whatever holiday property you choose and in whatever location, do your homework first – including financial calculations – before charging in, buy wisely and sensibly in the first place, lay down as large a deposit as you are able, do not go over-the-top in the decoration and furnishing department (but don’t skimp, either) and, ultimately, choose your agent with diligence.
Developer’s Notebook Jeremy Witherspoon