Whether it’s to generate income, contribute to retirement savings or simply cover the costs of owning a second property, investing in a holiday let can be financially rewarding. However, before you sign on the dotted line, its essential to weighed up whether the pros of owning a buy-to-let holiday home outweigh the cons.
Here we discuss why holiday lets don’t always make profitable holiday property investments. If you are not planning on using the holiday let for personal use, but simply as a holiday rental investment, there may be a better, more profitable investment solution for you.
The costs involved in owning a holiday home
Since the post-pandemic staycation boom, many investors are considering holiday lets as a likely low-risk and profitable safe haven for their money. Inevitably, there will be costs involved in letting a holiday home. It is important to collate all expected costs associated with your holiday let, including forecasting for unexpected bills as these could cancel out all your profits.
Location is the key contributor to the price of accommodation. Holiday lets in popular tourist destinations are typically more expensive than in other parts of the country, but holiday rent in these honeypot locations near popular tourist destinations tend to deliver high rental yields over the course of a year.
Seasonal occupancy
Seasonality can affect annual returns on a holiday let. Peak season can be fully booked whilst off-peak bookings are scarce and at greatly reduced rates. To see an ROI on a holiday property investment, ideally you should be working towards covering 12 months of mortgage payments within the 12 weeks of summer peak season i.e., one week’s rent pays one month’s mortgage.
The average occupancy level for luxury holiday lodges is between 32 and 34 weeks per year, but many managed holiday parks occupancy and income can be restricted by the park’s permitted open season.
It’s important to consider the financial impact of vacant periods, particularly during times of economic downturn or seasonality.
Maintenance costs and upkeep commitments
As a holiday let owner, it’s inevitable that amenities in the investment will need maintenance and replacing on a regular basis in line with demand and customer expectation to help your property remain attractive to guests and achieve the highest tariff.
No matter how well your property is looked after, there are unavoidable and unforeseen costs that may occur throughout the year that will need to be factored in. Broken down boilers and appliances could set you back financially.
Wear and tear will occur in a holiday let property, so finding a reliable cleaning, maintenance and grounds upkeep service is essential. There will also be costs associated with replacing furniture and soft furnishings.
With the rise in utility bills, it’s important to factor this cost into any outgoings. As well as fixed bills such as TV licence and holiday let insurance, tariff utility bills are harder to control because guests tend to use excessive amounts of water and energy e.g. leaving a shower running or air con on all day.
Safety requirements
As a holiday home owner, it is crucial for your property to meet the legal safety requirements and ensure annual testing, making sure your certificates are up to date and checked, and certification must be carried out by a qualified engineer. This includes a gas safety check, PAT testing and Fire Risk Assessment.
You may find that you will have to register a holiday let property with local authorities, and obtain a licence that states your home meets with minimum quality and safety standards.
As your property is being run as a business you may also need to pay for trade waste collection, so that it is collected more frequently. If your property doesn’t have parking and dependent on your location, a local council parking permits may be required.
Management and marketing fees
Unless you are looking to undertake the management yourself, which may require the same commitment as a 9-5 job, then it’s likely you will need to employ a property management company. These companies can look after everything from booking administration and deposits, vetting potential renters and writing contracts, inspections, and dealing with unruly guests or other problems that come along with renting out your property.
Whether it’s via a holiday letting platform or a your own marketing channels, to maximise your bookings, holiday lets must be advertised to the right market. Marketing costs are an essential part of your holiday let expenditure.
A property management company or marketing agency will eat into margins, typically 20-30% commission for an annual holiday lodge site approx. £3,500 – £4,000 fees.
Depreciation of holiday lets
In simple terms, depreciation is the reduction in value of an asset over time. When it comes to property, this can be caused by a number of factors including wear and tear, changes in market conditions or changes in legislation. The value of your holiday lodge will depreciate over time. This means that if you sell up, you are likely to get less back than you paid for it.
The rate at which your holiday lodge investment will depreciate will depend on a number of factors including its age, condition and location. However, as a general rule of thumb, you can expect the value of your holiday lodge to reduce by 15% within the first year.
Read How Much Do Holiday Lodges Depreciate here.
Taxes
If you let out a holiday home, you must pay tax on the income you receive, so you’ll need to factor this into rental rates. It is possible to deduct holiday home expenses from your income tax. Deductible expenses include refurbishment costs, insurance, utilities, mortgage interest, and even travel to the property.
Like any business, costs for accounting and tax returns must be considered.
When the time comes to sell your property, providing you sell at a profit, you may have Capital Gains tax to pay. If you’re buying an additional residential property to the one you call home, including holiday lets, you will pay the higher rates of Stamp Duty.
If you are using a mortgage to buy a holiday let, holiday let mortgages have specific conditions, specifically designed for an owner to borrow money in order to purchase a property that will be for personal use, as well as let out on a short-term basis for holiday guests.
Investing with GladePark Investments vs Self-Managed, Buy-to-let Holiday Home Investment
There is a lot to consider with owning a holiday let. If you are not planning on using the holiday let for personal use, but simply as a holiday rental investment, there may be a better, more profitable investment solution for you.
| Hand-offs, short term investment with GladePark Investments | Self-Managed, Buy-to-let Holiday Home Investment |
| Zero maintenance, hands-off investment | Limited occupancy and seasonality |
| 5-year guarantee period | Popular location |
| 110% buyback in year 5 | Maintenance costs, insurance and upkeep |
| No capital gains tax or council tax | Safety requirements and regulations |
| No stamp duty | Management and marketing fees |
| Fully asset backed | Depreciation of property |
| Fully managed by award winning management company | Council tax, income tax, capital gains tax |
Buying a Holiday Let Investment vs Short Term Investment with GladePark Investments.
If you are looking to invest in a buy-to-let holiday lodge, but don’t want the burden of a depreciating asset, then a hands-on, low maintenance investment could be a better option for you.
A particular style of holiday lodge investment that reaps all the rewards through a more hands-off approach, and one that is becoming increasingly popular, are lodges in parks such as Landal Belvedere and Landal Barnsoul.
Finding an investment with a reputable management company is important when looking for a well-managed, armchair investment. At GladePark Investments, we work closely with our management company Landal GreenParks to ensure your lodge plot investment is well maintained and all customer-facing admin is taken care of, so you can oversee your investment without sacrificing time and resource into maintenance and management of the property.
Our holiday resorts offer hassle-free investment opportunities from the plot of land, right through to the finished product, producing a reliable income without the need for consistent customer admin and property maintenance.
Get in touch today to find out how you can start your investment property journey.
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