Discovering whether or not a holiday let is a good investment for you is a vital stage when thinking of buying a holiday let.
You will need to know if the market is in a good place, how much money you could earn from your holiday let, and what to consider when purchasing a holiday home.Read on to discover why investing in a holiday let could be a could investment for you.
What is a Holiday Let?
It may be helpful to understand exactly what a holiday let is, before you decide whether or not it is a good investment opportunity.
A holiday let is a property that is rented out by holidaymakers for short periods at a time, from as little as one night, to a few weeks. At Sykes, the longest time you can stay at a property is 28 days (four weeks).
It is important to note that 'holiday lets' and 'short-term lets' aren't exactly the same thing. In order to be classed as a holiday let, your property must be occupied by holidaymakers. It is possible to run a short-term let for residential guests, and you need to be very careful to differentiate between the two.
A holiday let is classed as a business, therefore you must be seen to have an active intentionof making a profit in order to class as one.
Your property must also be furnished sufficiently in order to class as a Furnished Holiday Let, which can result in tax advantages for you.
Are Holiday Lets a Good Investment?
Investing in a holiday home can be a potentially lucrative decision, but doesn't mean that there won't be a number of challenges along the way.
The success of your holiday let investment could be considerable if you give it the right care and attention, but it is no walk in the park, and there is much to consider.
There are many factors to consider when investing in a holiday let:
Costs
Understanding the market
Rental rates
How you furnish your holiday let
Make use of our Holiday Let Income Calculator, which uses real-life data to estimate how much profit you can earn from your investment. To get a monthly view on how the market is performing, take a look at our Holiday Letting Pulse Report.
How profitable are holiday lets?
Depending on certain factors, running a holiday let may be more lucrative in the long term than buy-to-let properties.On average,short-term rentals attract a strong ROI and can offer a profitable income for property owners.
Pros of buying a holiday let in the UK
You may be wondering, do holiday cottages make money? The short answer is yes.
Here are some of the main reasons why holiday lets could be a good investment:
One of the benefits of short-term letting instead of long-term letting, is the difference in income that holiday lets can offer. In general, the cheapest places to buy offer higher rental yields when buying a holiday home for sale.
Holiday lets benefit from flexible and often daily pricing, as opposed to long-term lets which typically adopt strict monthly pricing strategies- it is not uncommon for holiday lets to earn more in a week than a long-term let will generate in a month.
If your holiday let is successful, this could result in a much higher income return than if you chose to long-term let.
By signing up with Sykes, you can benefit from our unique and market-leading Revenue Management systems to further maximise your income.
As holiday lets are classed as being a business, you may be eligible for a number of tax benefits that wouldn't be available for buy-to-let property owners.
Some of the holiday let tax relief opportunities include; Mortgage Interest tax relief, Business Rates relief, Capital Gains tax relief and more.You can also gain other tax relief if your property is fully furnished, just ensure that your property is fully furnished and available for guests to stay in order to be eligible. Check out our furnished holiday let tax guide for more information.
There are also potential cons when buying a holiday let in the UK. These can include:
Potentially Inconsistent Income
The consistency of income is one of the main differences between short-term letting and long-term letting, which can be a disadvantage to those looking to holiday let.
As holiday let guests stay for shorter periods, and business is much more demand-led in comparison to residential buy-to-lets, this means that there is no guarantee of a full calendar throughout - especially in the winter months as less people are looking to go on holiday.
There are ways that you can make up for this as a holiday let owner however, as short-term letting can allow you to charge higher rates, and increase your prices during the busier months.
Running a holiday let requires regular attention, which is a downside for those that don’t have as much time on their hands.
Full changeovers, cleaning and any maintenance needs doing after each stay, which can be hard to keep on top of during peak periods.
If you don’t think that you have enough time, or you live far away from your property, then working with a holiday let management agency may be beneficial to help your holiday rental business to run smoothly.
Extra Costs are Your Responsibility
In contrast with long-term letting, owners of short-term lets are responsible for covering extra costs such as utility bills and council tax. You can however include such costs within your rental rates to keep your outgoings down.
When considering a holiday let investment, there are extra costs that must be taken into account.
Holiday Let Stamp Duty
Stamp Duty is one of the larger costs that people may not consider when looking at investing in a holiday home. Also known as Stamp Duty Land Tax (or SDLT), it is a tax that must be paid when buying a property in England or Northern Ireland.
The amount that you pay depends on the purchase price of your property. Stamp Duty is only required for properties bought for ÂŁ250,000 or more.
Tax on Holiday Lets
VAT and Business Rates are among the other additional costs that must be accounted for if you are considering investing in a holiday let.
When buying a holiday let, you’ll need a specific holiday let mortgage to suit this type of activity. There are fewer providers offering this type of mortgage than those that offer standard mortgages, and there can often be restriction, such as the maximum loan-to-value (LTV) a provider will offer.
There are also some tax benefits with holiday let mortgages. For example, you can currently offset the interest on your mortgage against the rental income you make. So, if your property made ÂŁ12,000 in one year and the interest on your mortgage for that year was ÂŁ9,000, you would only be liable to pay tax on the ÂŁ3,000, according to your own tax rate.
How much deposit do you need for a holiday let?
You will need to obtain a holiday let mortgage deposit of at least 25% in ratio to the property's value. For example, a house worth ÂŁ400,000 will require a minimum deposit of ÂŁ100,000.
What Return on Investment Can You Get from a Holiday Let?
When trying to decide if holiday homes are a good investment, it is important to estimate what Return on Investment you can expect before you begin purchasing a property.
What is the average profit on a holiday let?
On average, Sykes owners can earn around ÂŁ24,500 annually through bookings, but the amount that you could earn will depend on a variety of factors such as:
Property Location
Where you buy your holiday let is one of the first and most important decisions you are going to make - getting this right will go a long way towards helping your investment towards success.
There are many considerations to keep in mind when choosing where to buy a holiday let, such as the popularity with tourists, the volume and quality of competition, as well as the property being in a location that suits you from a management and changeover perspective.
The most popular destinations among Sykes customers in 2023 were dominated by coastal hotspots and walking havens such as North Yorkshire - this could be something to keep in mind during your research.
Property Features
As well as the location and type of your property having an impact, you can also include desirable features that both make you stand out from other similar properties, but also allow you to increase your rental rates to maximise your income.
Some of the most popular features among UK holidaymakers include open fires and woodburning stoves, WiFi, and especially hot tubs. Guests are looking for that something extra when they go on holiday, something that they perhaps would've have at home. Keep this in mind when furnishing your holiday let.
The Type of Guests you Accommodate
This is something that is perhaps often overlooked when starting a holiday let business, however it can really pay off to consider and target a certain type of guest. Rather than setting up a holiday let that you think looks nice and hoping that the bookings come flooding in, the more savvy plan would be to take a look at the kind of holidaymakers that the area attracts and cater towards this.If your holiday let sits in a popular watersports location, you may consider including a space to store wetsuits and equipment, if you are close to well-known walking spot, you might offer somewhere to leave muddy boots, some suggestions on the best routes and perhaps provide an open fire for your guests come back to after their adventure.It is also important to consider setting up to cater to an audience that suits you. For example, if you want to minimise the amount of cleaning during changeovers, you might choose not to accept parties, pets or children.
Number of Rooms
The size of your property and how many it can sleep is one of the most influential factors in how return on investment you can expect from your holiday let.The way that you configure the rooms in your holiday let can be a tough decision to make - do you look to increase your income by adding another bedroom, or do you keep the party size lower and offer a special feature such as a games room or snug to try and provide a truly special experience?
This all comes down to what suits you the most in terms of the holiday you're looking to offer and which types of holidaymakers are you looking to bring in. An important point to keep in mind is to try and provide one bathroom/WC for every bedroom in the property.
Here at Sykes, our Revenue Management team use our unique and dynamic pricing tool to help holiday let owners earn as much money as possible from their bookings.
Rental rates are constantly changing to keep in line with seasonal trends and customer demand. Successfully adopting a dynamic pricing strategy would be very difficult on your own.Our helpful and knowledgeable team of Property Consultants are also on-hand to offer any advice and guidance that you may need. Each focusing on their own area of the UK, they have a wealth of knowledge to share regarding location, pricing and demand to help make your decision.
How Much Can I Earn?
The average annual turnover of a UK holiday let is 59% up versus 2019. Get in touch to find out how much you could earn from a holiday let!
If you’re open to choosing a property based on its earning potential rather than having your heart set on a specific location, here are some top tips to help.
Where can I buy a holiday let?
In our in-depth 2024 Holiday Let Outlook Report, our data revealed that the Cotswolds was the top-earning location in the UK, yielding ÂŁ28,500 per year on average, with a four-bedroom property earning ÂŁ46,300. To jump on this trend, why not look at the holiday homes for sale in the Cotswolds and Gloucestershire?
If you’re always on the lookout for the latest trends, there are some destinations in the UK that are becoming increasingly popular. We take a look at the best places to buy a holiday home in the UK, with regions such as Cornwall, Devon, and Scotland coming out on top.
There is also increasing demand for short-stays, with urban areas such as Liverpool and Bath gaining popularity.
If you plan on managing changeovers and maintenance to reduce costs, you’ll need to be able to travel to and from the property easily. Alternatively, you can manage your holiday let remotely.
How to Maximise Your Income
When you’ve bought your holiday home, there are ways to help boost the income you get from it. We noticed some clear recent trends that could help you generate more revenue.
Our customers are clearly looking for a little luxury, as properties with hot tubs, on average, can earn 37% more than those that don’t. Holidaymakers also want to stay connected while they are away – properties with WiFi can earn up to 55% more than those without.
Including all members of the family is also attractive to travelers in the UK. For example, accepting children or pets facilities in your holiday let could boost your earnings by 15% a year.
Holiday chalets can indeed be a lucrative investment for those seeking both financial returns and personal enjoyment.
Often situated in scenic locations that attract holidaymakers and tourists alike, there are several compelling reasons why they can be a good holiday home investment. But are holiday chalets a good investment for everyone?
Holiday chalets offer a stable and potentially profitable income stream. They have the possibility to generate substantial rental income during peak travel seasons, especially if they are in high-demand locations or tourist hotspots.
Location
Location is a crucial factor when considering a holiday home investment, as chalets in less popular or remote areas might struggle to attract enough guests.
Investing in chalets located in prime destinations, on the other hand, can lead to high occupancy rates and increased rental income, further enhancing the viability of the investment.
Assessing the market trends and demand patterns in the target location is crucial to make an informed decision about the viability of the holiday home investment.
Weigh Up The Risks
Holiday chalets in the form of a lodge or a cabin can depreciate as soon as they are purchased if they are not cared for and properly maintained.
If you’re someone considering holiday chalet investment, you should carefully evaluate whether it offers a warranty and be mindful that the resale value will relate to the quality of the build and the maintenance of the property.
The tourism industry is seasonal, leading to fluctuations in rental demand and meaning that you rental income will significantly fluctuate depending on the time of year.
Furthermore, regulatory considerations, tax implications, and ongoing maintenance costs must be thoroughly researched before investing in a holiday chalet.
Maintaining and managing a chalet can be time-consuming and may require hiring property management services to ensure its optimal performance as a holiday home investment.
Seek Advice From Experts
Engaging with a professional financial advisor and conducting a comprehensive feasibility study can help mitigate these risks and ensure a well-informed investment decision when considering whether holiday chalets are a good investment.
If you're considering purchasing a holiday let but not sure how to fund it, why not read our blog post on how to expand your holiday let property portfolio.
Personal Use
Beyond financial gains, holiday chalets can also serve as a personal retreat for the owners. Investors can enjoy their chalet during off-peak seasons or use it for personal vacations, providing a sense of relaxation and escape from the hustle and bustle of everyday life.
Holiday chalets have the potential to be a good holiday home investment, offering both financial returns and personal benefits.
However, individuals should carefully weigh the pros and cons, assess their investment goals and risk tolerance, and thoroughly research the market conditions before deciding whether holiday chalets are a good investment for their specific circumstances.
Ready to Get Started?
Do you have your mind set on the journey? If so, ensure that you are taking the right first steps on your journey.
There are a range of informational guides out there to help you on your way on a variety of different holiday letting topics including:
At the time of publishing (4th March 2024), Sykes Holiday Cottages has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s mortgage and saving affairs are different, further advice should be sought from a qualified supplier.
Charlotte Beautement, Holiday Let Content Writer
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