Owning a Holiday Let – The Reality – Part 1
Ashley Pearson, National BDM at The Loughborough for Intermediaries
There’s been a huge amount of talk about the holiday let market in recent times and, working for a building society who remains committed to lending in this space, it’s fair to say that some of these conversations have been easier than others due to a host of individual financial circumstances, approaches and attitudes. However, for the purpose of this two-part article, I’m going to take my lending hat off for a little while and put my holiday let landlord one firmly on.
Whether for pleasure, business or a mix of the two, holiday lets have become hot property in recent years and with demand of UK staycations remaining strong, this appeal remains evident. But what is the reality of owning such a property?
After owning a holiday let for a few years, I’ve put together a few pointers for potential investors or landlords looking to diversify who may be looking to enter this market.
It sounds obvious but the location of the property is key. Is it near any attractions, landmarks, beaches, national parks and local amenities?
I purchased a property 100 metres from a pub thinking guests would appreciate the option of having somewhere to eat out and have a drink without the need to drive or get a taxi. I also knew that dogs are allowed in the pub.
Research suggests that allowing your holiday cottage/house to be dog friendly achieves 13% more bookings, though consideration needs to be taken if you’re turning the property into a high-end specification type holiday let. Carpets and interior furnishings also need to be extra hard wearing to reduce odours and constant heavy-duty cleaning is needed. Our property has wood flooring, and the furniture is hard wearing with a number of throws available to use.
Of equal importance is to really crunch those numbers. For those who need a mortgage, engaging with an independent mortgage broker should always be the first port of call as they will have access to a range of holiday let solutions from a host of lenders, including Loughborough Building Society. It’s also prudent to point out that there is the option to use an interest only facility on such borrowing.
Ongoing costs. Aside from the mortgage element, there are a number of ongoing costs to consider such as buildings & contents insurance, gas, electric, water, broadband, cleaning, gardening, arrival gifts, tea and coffee along with setting aside money for new items such as microwaves, pots and pan, bedding and towels which will wear and tear over time and will need replacing. This all adds up. There’s an old saying, buy cheap, buy twice. So, make sure whatever items you buy for your holiday let will last the course of time until you inevitably have to replace them.
Maintenance. If the property has a garden, you’ve got to think about hiring a gardener unless you’re able to do this yourself. In the summer, a large garden can take time to maintain and can be even more challenging if there are short periods between changeovers – which is ultimately what you are aiming for. Maintenance tends to take place out of season or if we get any small gaps in bookings, so you need to consider having someone on call if you’re not near by the property because if something goes wrong your guests will want certain issues resolved within 24 hours, if not sooner.
I like to break my costs down into two elements.
Committed costs – mortgage repayments, buildings insurance, broadband and gardener. These costs are based on no occupancy for a week/month.
Variable costs – gas, water and electric. Although I’ll still need to factor in some of these payments even with no occupancy,
If the property is occupied, the energy consumption will increase which needs to be incorporated into my modelling. Gas and electric prices have seriously impacted costs per stay in recent years and you have to remember your guests are on holiday so any thoughts of saving energy are out the window. Cleaners are required when the property is occupied as are condiments, wood for the log burner (which I have), toiletries etc.
Many of these may seem obvious, but you’d be surprised how quickly costs can mount up and how many people don’t take these committed and variable costs into account when purchasing their first holiday let.
In my next piece, I’m going to move on from outgoings to focus more on incomings and share some of the things I have learned from a marketing perspective, the role of the review and the importance of cleanliness…
For part 2 click here