Buying A Holiday Home For Investment

Posted by in Blog, Chartsedge News on the 7th of March 2018

If you are dreaming of owning your very own beachside bolthole or rural retreat, there are certain practicalities you need to consider before buying a holiday home for investment.  Choosing a suitable location, the right type of property and looking into all of the tax implications that come with a holiday home, all need to be considered before you commit to your dream holiday home in the South West.

We at Chartsedge are experts in marketing holiday homes in Devon, Cornwall and Dorset and with the Directors having over 50 years experience between us in the estate agent industry, we have the experience to advice buyers and sellers on how best to sell or buy their holiday home.

Buying A Holiday Home for Investment – Our Guide

1.  Location, Location, Location

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Nearly all holiday let properties are fully booked in the peak season wherever they are and these weeks are an easy sell. However the well located properties come into their own in shoulder months and off season where they always out perform their weaker rivals in both rate per week and weeks booked. The absolute perfect location is a property with a sea view and walking distance to a beach but unfortunately this comes at a price with big premiums being paid for that sea view. However these types of properties may not come with the best income return on investment as the capital outlay (price of property) is so much more.

For the majority of holiday tenants the availability of amenities close to their holiday home is essential, they don’t want to be getting in the car all the time to get the basics. A local pub that serves food and a local shop selling provisions within walking distance is a great draw. Also tourist attractions and indoor activity centres to keep the children amused are also helpful in increasing the length of the season.

Having private allocated parking at the property or very close by is essential in most cases and is what holiday tenants expect. It will also protect the value of the property. There are exceptions to this rule as some of the most popular locations such as Salcombe, Polperro and St Ives don’t have parking due to the tiny streets and terraced houses and holiday makers do not expect parking in these seaside towns.

Having said this holiday homes in rural locations are becoming more and more popular both as exclusive romantic boltholes, and with those taking holidays out of season to go on walking and to use the properties as a base to explore the countryside. Cycling holidays are very popular and having a lovely cottage on Dartmoor for example is a great base from where to cycle and enjoy the stunning countryside. When letting properties in more remote locations you would be well advised to have a well stocked Welcome Basket when tenants arrive with local produce enough for a first breakfast and a bottle or two of wine. Local hamper companies can usually deliver on changeover days Devon Hampers. Details of local pubs, farm shop and local attractions should be available at the property, many of our clients are now uploading these details to an iPad for guests to peruse. Although this sounds expensive you can update them remotely and they also have all the details of the house and the rules you lay down.

2.  Know Your Visitors

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When you are looking for a holiday let investment you may be viewing houses/apartments that have never been let and are not set up for the letting. There are many good letting companies that are willing to advise you on what a property needs for your customer and also are able to give you a prediction or letting income. Please contact us for an example.

If you are buying a 4/5 bedroom coastal house the needs of your clients are different than a 2 bedroom rural thatched cottage. The 4/5 bedroom home is going to be used by families with children of all ages so you needs to be taken into considerations. Decent outside space is essential for the children to play in and for everyone to enjoy a BBQ (if it is thatched you may not want to provide one as it may void your building insurance) ask Boshers Holiday Let Insurance . Also an outside shower to wash wetsuits and sandy feet can save your carpet.  An open plan kitchen family room is popular with a separate living room for the kids to watch TV and a utility room with washing machine and dryer is also a plus. If it is a family house then at least 2 bathrooms are needed.

If you are thinking of a small cottage you want to be appealing to a ‘couples’ market or people with older offspring. It should be more luxurious with lovely furniture and decoration inside to attract this type of market. They are using it to”get away from it all” and tend to stay in for longer, so it needs to be a pleasant place. These properties, hopefully, won’t get the wear and tear that a family house will so nicer carpets and great mattresses give that luxury feel. Luxury linen is also a good investment as people often comment on this in their feedback which is good for marketing and reviews. Linen is one of the most time consuming aspect of a changeover and many people rent their linen which is delivered whenever needed to save time and to ensure quality try; Eco Laundry

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Buying an investment property is not the same as buying a home that you intend to live in.  Your holiday home will need to be in excellent order throughout before you offer it for rental, so a property that needs lots of refurbishment won’t start to earn you money straight away.

You will need to factor in the expense of filling it with good quality, durable furniture that will be able to withstand constant use throughout the year.  Your kitchen will need to offer everything that your visitors need to stay there independently, including appliances, and you may even need to add additional WC’s or washing facilities depending on the size of the property you buy.

However many guests you are hoping to attract, there will be certain facilities that most will expect to be available to them during their stay.  Wi-fi is essential these days and you will need to ensure that you have a good, secure connection wherever possible.   Other wish list priorities include private gardens, bbq areas and even hot tubs all help to add value.

If you are planning on renting our your holiday home all year round, you should consider offering a log burner or an open fireplace to add a cosy ambience for winter travellers looking for a getaway.

If the property you are considering purchasing does not easily offer these facilities, you will need to consider the cost of potential building or renovation work into the purchase price, and the achievable rental value.

3. Understanding Your  Letting Income

When viewing a property that is not currently holiday let it is wise to contact a holiday letting agent in the area to find out how much they think such a property would let for in peak, shoulder and low season as well as how many weeks/booking you can expect.  Many agents are able to give you a quick quote without visiting the property and are most helpful as they hope to attract your business.

buying a holiday home for investment 4It is important to use the right letting agent depending on where your property sits within the market. For example a mid-range national agent could be Sykes Holiday Cottages at the high end Unique Home Stays or coastal experts Beach Retreats (as in 2 Cedars on left) would fit the bill.

When looking for properties through estate agents many quote a gross income figure that the current owners earn through holiday letting. Be careful with this figure and make sure you ask for the Net income. The gross income usually looks amazing and potential buyers get very excited at the possibility of earning such a high income.  You need to remember that there are many expenses attributed to holiday letting that a normal buy to let property does not incur.

Holiday Letting agents fees can vary from 14% to 25% . Now this sounds a huge amount but these agents may well be taking 32 bookings a year for you, marketing your property on websites, holding deposits, dealing with complaints, issuing refunds of deposits etc.

Changeovers are when one holiday maker leaves and another arrives. These usually happen on a Friday or Saturday with the outgoing person leaving at 10am and the new one arriving at 3pm. This is not a lot of time to clean, change the sheets and set up on a large house which usually requires 2 or more cleaners. We estimate that this can cost approximately 5% of the rental income.

On top of this there are all the normal costs associated with a house, Council Tax, utility bills, gardeners, window cleaning etc. which have to be taken into account.

Over the years we have estimated that the gross income a property earns should be divided by 2 which then gives you your net income in your pocket at the end of the year.

You can obviously mitigate these costs by letting the property yourselves and doing your own changeovers which makes it much more profitable.

4. Know Your Financial Obligations

Purchasing a holiday home in the UK comes with some complicated financial and tax implications that you need to be aware of. If you need a mortgage to purchase your new holiday home and it is holiday restricted you will usually need a commercial mortgage that may not be available from the usual High Street lenders.

Specialist building societies will want proof that you can achieve a gross rental income of between 125-130% of your mortgage payment before they will agree to lend. For mortgage advice try Mark Lanario at Holiday Let Mortgages

Holiday lettings are also subject to capital gains tax, as well as your usual council tax and stamp duties obligations. There, are however some tax relief incentives to be had from owning a holiday rental.

A furnished holiday let for example,  is a specific rental property classification and offers you certain tax advantages. The interest on your mortgage will be an acceptable tax deduction, and there are usually further allowances for utilities, furnishings and insurance.

You should always speak to your financial advisor in detail before purchasing a holiday home to ensure that you fully understand your obligations and potential additional expenditure. John Endacott from Francis Clark in Truro has created an interesting blog about the tax position on owning a holiday let.

You also need to be aware that during the first couple of years may not see much profit.  There are a variety of expenses involved in setting up and running a holiday let all year round. You will need to make allowances for mortgage repayments, property management fees, cleaning, changeovers and maintenance expenses, taxes, insurance and households bills and of course the furniture.

5. Think With Your Head Not Your Heart

Buying an investment property is not the same as buying a home that you intend to live in.  Your holiday home will need to be in excellent order throughout before you offer it for rental, so a property that needs lots of refurbishment won’t start to earn you money straight away.

You will need to factor in the expense of filling it with good quality durable furniture that will be able to withstand constant use throughout the year, using local furniture companies that specialise in holiday homes such as iroka can save a lot of time.  Your kitchen will need to offer everything that your visitors need to stay there independently, including appliances, and you may even need to add additional WC’s or washing facilities depending on the size of the property you buy.

However for the type of guests you are hoping to attract, there will be certain facilities that most will expect to be available to them during their stay.  Wi-fi is essential these days and you will need to ensure that you have a good, secure connection wherever possible.   Other wish list priorities include gardens, bbq areas and even hot tubs all help to add to the rental income and bookings.

If you are planning on renting our your holiday home out all year round, you should consider offering a log burner or an open fireplace to add a cosy ambience for winter travellers looking for a getaway. Don’t forget the winter duvets!

If the property you are considering purchasing does not easily offer these facilities, you will need to consider the cost of potential building or renovation work into the purchase price, and the achievable rental value.

5. Have A Professional Manage Your Holiday Home

These days it can be tempting to just stick some pictures of your new holiday home on the internet and hope for the best. In reality though, you will want to enlist the help of management company to handle the day to day details of your holiday home.

From bookings and key collections, through to emergency repairs and replacement furniture, a professional managing agent will look after all aspects of your property while you are away. You will need to consider the cost of this service as an additional expense when you are finalising your figures.

A great company called Bespoke Devon offer tailor made property management solutions for you holiday home, contact Nicki for advice.

Finally, if you are hoping to use your home as a bolthole for the family throughout the summer months, you may well lose out on a portion of your profit but you are making lasting memories for you and your family and friends.  Many owners of holiday homes don’t actually get to spend very much time in them, as a successful rental is one that is occupied nearly all year round.

Here in the South West there is a huge variety of beautiful properties to choose from.  Every one of them as unique as the next, and all offering the potential to work well as a holiday home for investment.

We hope you’ve enjoyed this post on Buying a Holiday Home for Investment. If you would like further advice about buying a holiday home in the region then get in touch, and our friendly team will be more than happy to share their experience and expertise with you.

Miles Kevin MRICS

Director