If you’re considering buying and renting out a holiday home there’s plenty to think about, from finding the right location and property, to tax and holiday let insurance implications.
In this comprehensive guide we’ll explore every aspect to buying a holiday home and successfully renting it out.
- Buying a holiday let for the right reasons
- Where to buy a holiday home
- What type of holiday home should you buy?
- Before you buy a holiday home
- Do you need planning permission to rent a holiday home?
- Getting a mortgage on a holiday home
- The cost of running a holiday let
- Fixtures and fittings – kitting out your holiday home
- Health and safety and holiday lets
- Running a holiday home yourself vs hiring an agent
- How much rent should you charge for your holiday home?
- Advertising your holiday let
- Getting ready for visitors to your holiday home
- Tax: holiday let rules
- Holiday home insurance
While you’re still in the consideration stage, you need to carefully think through your motivation for buying a holiday let.
Do you primarily want somewhere you, your family and friends can escape to? Is your primary motivation to generate income from rent? Do you view it as a long-term investment? Or is it a mixture of all three?
Working out clear objectives at the outset will influence many of the decisions you’ll make.
If you want to maximise rental income bear in mind that you’ll make the most money from renting out in peak holiday times, which limits the amount of use you’ll get out of the property yourself. If you’ll mostly be using it yourself, you’ll want to be sure it’s in a destination you’ll want to return to. You’ll also need to work out how much time you can devote to running a holiday let, although for a cost you can devolve daily management to a holiday letting agency.
The best place to own a holiday home is clearly a popular location for tourism. You can look at existing holiday rental websites to get an idea of the likely income for each month of the year for different locations.
It stands to reason that properties with higher income yields will be more expensive to buy, but they are also likely to be the best for long-term investment.
Things to consider when choosing a holiday let location:
- Is the property easily accessible? Is there car parking? Is there good public transport?
- What amenities are nearby? Are there restaurants, tourist attractions, pubs, country walks etc within easy reach?
- How far away from your home is the property? This is important if you are thinking of managing the rental yourself, as you will need to be on hand to deal with any issues and keep up with the maintenance.
- What type of guest do you want to attract?
- If the long-term aim is to retire to your holiday home, can you see yourself living in your chosen location for good?
It’s worth paying a few visits to your chosen location at different times to see how busy it gets and if the amenities stay open all year round.
There are plenty of things to consider when choosing a property.
If you’re planning on staying there yourself as well as renting it out, it primarily needs to be what you want and have everything you need. Then you need to think about the type of things that people often look for when staying in a holiday let.
You might think about finding somewhere that has the following:
- An outdoor space to relax.
- Ensuite bathrooms.
- Curb appeal.
- A welcoming interior, especially if you don’t want to be making many changes.
- A wood burner, open fireplace, wooden beams and original features are always popular.
- An adequate heating and hot water system.
- Somewhere to park, preferably for more than one car.
Don’t let your heart rule your head, do your homework and follow all the usual steps you’d take when buying a property.
- Use property websites to compare the prices of similar properties sold nearby and obtain an independent valuation and a full structural survey before committing.
- Consult the local planning authority and look on local news websites for any new developments that may help or hinder your ability to rent the property out.
- Check that you can legally rent the property out. If you’re buying an apartment, renting may be against the terms of the leasehold agreement.
- Some older homes may also have restrictive covenants in the deeds from when they were built, but these can usually be covered by a special insurance policy.
Often, you won’t need planning permission to let out a property as a holiday home. If you’re buying a property which is an existing holiday home, you won’t need to apply for planning permission as long as you don’t plan to make any major physical changes to the property such as an extension.
However, if you are considering turning a standard house into a holiday let you will need to check its existing use class. The use class of a holiday let will usually be the same as for a dwelling, although properties housing more than six people can sometimes require planning permission for a change of use. If you’re buying a property and converting a barn, garage or outbuilding to a holiday let you will almost certainly need planning permission.
If you can’t pay outright or remortgage an existing home, you will need a special holiday let mortgage. Holiday let mortgages generally require a larger deposit than residential mortgages, usually around 25-30%. Interest rates are also slightly higher because the income from a holiday rental is not guaranteed, and therefore riskier for a lender. Just like a normal mortgage though, two and five-year fixed rates are available and it pays to shop around to get the best deal. Alan Boswell Group aren’t able to arrange mortgages, but there are plenty of competitive mortgage brokers available who will be able to help.
The best rates are available to borrowers who can convincingly predict a pre-tax rental income of 125% to 145% of the monthly mortgage repayments. Before committing you’ll need to do your sums and take into account any lost income from the periods when you want to use the property yourself.
If you’re buying a holiday home abroad you can get a loan from a UK bank or building society that has a presence in your chosen country, or through a local lender.
When you are starting a holiday let effectively you are setting up a new business venture which always comes with up-front costs, along with the ongoing expenses you’ll incur.
Among the costs you’ll have to pay, both at the start of your ownership and on an ongoing basis, include:
- Planning permission fees if you need a change of use.
- Paying for furniture, fixtures and fittings to kit out your holiday home, including any replacements.
- Equipment to make sure you comply with health and safety regulations.
- Advertising your property online.
- Commission payable to a holiday letting agent if you choose not to manage the rental yourself, which can be as much as 25% of each rental.
- Gardening fees and cleaning costs, if applicable.
- Ongoing maintenance of the building, including heating and electrical systems etc.
- Mortgage costs.
- Utilities bills.
- Tax and insurance.
- Maintenance of things like hot tubs and swimming pools, if applicable.
Remember that the fee you charge renters will factor in all of these costs so that it’s still possible to make a profit in the medium term.
Unless your holiday home is mostly going to be for your own use you’ll want to furnish and decorate the property to appeal to a broad range of visitors.
It’s probably best to go for neutral colours and simple, comfortable furniture, while steering clear of things that stain easily and are more likely to show up wear and tear. Make sure to show some personality by adding tasteful artwork, ornaments, stocked bookshelves and sturdy drawers and cabinets.
There are a number of amenities your guests will expect to find in a holiday home, including:
- A reliable WiFi connection.
- A working TV, with satellite or cable TV packages an added selling point.
- A full range of white goods, including dishwasher and washing machine.
- A kitchen well stocked with cookware, plates, mugs, glasses etc.
- Enough garden furniture to seat the maximum number of guests that can stay.
Also bear in mind the type of guests you’re likely to attract. If you’re near the beach, it’s a nice touch to provide buckets and spades and beach umbrellas etc, but if you’re in the Lake District a shoe grate and guidebooks detailing local walks would be appreciated.
As a landlord it is your responsibility to ensure the safety of your guests, and there are strict regulations in place you must adhere to.
We’ve put together a summary of the most important safety checks you’ll need to carry out.
- Carry out a fire risk assessment or employ a company to carry one out for you.
- Fit smoke alarms on each floor of the property and test the batteries regularly.
- If you have an open fire or a woodburner, have the chimney swept once a year and provide a fire guard for open fires. It’s also worth leaving instructions for those unfamiliar with “real” fires. Any property with a solid fuel appliance should be fitted with carbon monoxide detectors, which should be checked for operation regularly.
- All furniture provided must comply with fire safety standards.
- Provide a fire extinguisher and a fire blanket in the kitchen.
- Clearly mark fire escapes and provide advice on what to do in your welcome pack.
- Gas systems, flues and appliances should be checked every year by a Gas Safe registered engineer.
- Provide your guests with instructions on how to safely operate appliances like boilers and gas fires.
- Carry out visual checks on all electrical appliances on a regular basis.
- The electrical installation and all appliances must be checked by a NICEIC registered electrician at least every five years.
- Provide full operating instructions for all electrical appliances and equipment.
Swimming pool safety
If you have a swimming pool, or even a hot tub, you must ensure you have taken all reasonable precautions to prevent accidents, and should consider:
- Installing a fence with a lockable gate around pools.
- Erect danger signs showing the depth of the water.
- Set clear guidelines for the use of the pool or hot tub in your welcome pack.
- Provide safety equipment such as lifebuoy rings and hooks.
You should also carry out a thorough risk assessment of any hazards in the holiday home that may lead to an accident.
You’ll need to decide whether you’re going to be hands-on with the running of your holiday let or pay a management agent to handle everything for you. This will partly depend on your proximity to the property but if you do use an agent expect to pay them around 20-25% of your rental income.
If you’re nearby and want to maximise income by handing everything yourself, you will need to:
- Arrange all the marketing.
- Handle the cleaning and laundry between guests.
- Correspond with guests about bookings and handle inquiries.
- Be on hand seven days a week in peak periods and be able to handle emergencies like a boiler breakdown.
- Arrange any maintenance on an ongoing basis.
Customer service is crucial if you want to run a profitable holiday home venture, with guests leaving feedback on popular websites like TripAdvisor potentially affecting future bookings.
The two main things to bear in mind are your costs and being competitive in the marketplace.
First, add up all of your costs for the year, including any mortgage, utilities, cleaning, maintenance, advertising, insurance etc, so you know what income you need to make a profit. Then scour holiday let websites for similar-sized properties in your area to work out how much they typically charge at different times. Weekends will command a premium over weekdays if you’re happy to accept stays of less than a week.
You don’t want to be the cheapest, or the most expensive, but it’s better to start off higher and reduce rates if bookings aren’t coming through. If your property happens to be near a popular annual event you can charge a premium as accommodation will be in high demand.
To attract guests, you need to market your holiday home effectively, using high quality photography and copywriting to make it stand out over the competition.
Good quality photographs present a professional image, but equally important is how you present the holiday home. Stage photographs with attractive bed linen, a dining table ready for dinner with a bottle of wine and flowers, and a welcome hamper in the kitchen.
Choose a sunny day to photograph – not only will it make the outside look vibrant, but it will provide better natural light when photographing the interior.
If you have a wood burner, take a photo of it roaring away in the evening. If you’re not confident in your photographic abilities, you can hire a professional for about £200.
Writing the advert
Read through plenty of other adverts and pick out the best examples before you start.
Provide an introduction to the property and the area – “an idyllic country retreat in beautiful surroundings to help you escape the hustle and bustle of daily life”.
Use bullet points to highlights the property’s best features, for example:
- Stunning sea view.
- Landscaped garden.
- Inglenook fireplace with wood burner.
- Plenty of parking.
- Pets accepted.
How to advertise
There are plenty of ways you can advertise short term holiday lets.
As well as through word of mouth and local shop windows ads, you can set up social media accounts, where a dedicated page can include photos, good reviews and articles relevant to visitors.
Facebook advertising can also be a cheap way to reach potential customers who have an interest in holidaying in the UK.
Setting up a website is a cheap way to increase your online presence, and you can add a blog to write articles about what to do in the area, any developments to the property and show positive feedback. Remember to use keywords like “holiday cottage in Norfolk”, for example, to help you show up in search results.
There are dozens of holiday let websites that will host your advert and drive bookings, taking a small commission on each.
You’re ready to accept your first visitors, so let’s run through a quick checklist to make sure you’re ready:
- Thoroughly clean and tidy everything and make the beds.
- Give the home a proper airing if it’s been closed up for a while.
- Provide a welcome hamper with some basics like milk, bread, tea bags and eggs.
- Think about providing some board games, jigsaws, books and DVDs.
- Create a welcome pack providing instructions for all appliances, WiFi password and details of local restaurants, pubs and attractions.
- Provide clear instructions on checking in and out times, and how guests can collect and drop off keys.
The income you receive from renting out a holiday home is subject to income tax, and if you sell the property for more than you paid for it you could be liable for capital gains tax. But there are tax benefits in owning a property rented out for short-term holidays, compared with a standard buy-to-let on an assured shorthold tenancy.
To qualify as a furnished holiday let for tax purposes your property must be available for let for a minimum of 210 days a year, and it must actually be let out for at least 105 days a year. Each let must be no longer than 31 days and free of charge lettings cannot be counted.
The main benefit is that you can still deduct mortgage payments from your rental income to reduce taxable profits, and you also qualify for Capital Gains Tax reliefs for traders. You can also deduct other holiday home expenses, such as utilities bills, insurance, the cost of furniture, advertising etc. See our guide to tax on rental income for more details.
See the HMRC website for full details. Whilst we can provide generic guidance in respect of tax, we aren’t accountants. Tax laws can change and so can your personal circumstances so you may need to seek advice from a qualified accountant. Please also bear in mind that the Financial Conduct Authority does not regulate tax advice.
Standard buy-to-let insurance will not cover properties rented out as short-term holiday lets, because properties rented under an assured shorthold tenancy are occupied for the vast majority of the year and to a single tenant or family.
That’s not the case with properties rented out as holiday accommodation, which can be unoccupied for weeks or months at a time and have a high turnover of mostly unvetted, short-term “tenants”.
As such, you will need a specialist holiday home insurance policy designed to deal with these scenarios.
There is also specialist cover available if you own and are renting out a property in serviced accommodation.