Are Holiday Lets a Good Investment?

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Bricks and mortar have always been a popular investment and buying a holiday home could be the perfect investment option. You’ll own a holiday cottage that you and your family can escape to, plus you could also make a profit by letting it out to holidaymakers.

However, owning a holiday let is hard work, guests can be difficult and income isn’t guaranteed. So before you sign on the dotted line – here’s everything you need to consider when asking are holiday lets a good investment.

Pitfalls of buying a holiday home

Inconsistent income

If you’re looking to make money from holiday lets, then be prepared to work hard and be in it for the long-term, especially if you have a mortgage on the property.

Depending on where your property is located, and the amount of competition (which keeps prices low), you will be lucky to cover the cost of your mortgage, let alone enjoy a profit at the end of the first, or even second year.

There’s also no guarantee of a full calendar throughout the year, especially in the winter months when fewer people are looking to go on holiday.

During economic downturns (and global pandemics) your income will drop dramatically. During the Covid pandemic, there were many months of £0 income.

Continuous investment

The day-to-day costs of running a holiday let are high. You’ll be responsible for utility bills, laundry, cleaning, gardening, pool/hot tub maintenance, council tax, insurance and mortgage repayments.

Maintenance costs can also be high, and most owners don’t budget for them. You’ll constantly have to rectify wear and tear, damage and replace broken items

There will also be travel costs if your holiday home is located far from your main home.

Marketing and management costs

Then of course there are marketing and management costs to take into consideration, both of which can take a hefty chunk out of your rental income.

Your marketing costs are an essential part of your holiday let expenditure. In the beginning, you’ll be using advertising portals such as Vrbo or Airbnb to promote your holiday home. But as you get more proficient at running your business, you should start to look at creating your own website and utilising social media channels.

If you use an agent to manage bookings and customer service, they can charge up to 25% of your rent. There will also be call-out charges (£50 a time) to attend to your property when things go wrong.

Managing a holiday home is hard work

If you’re planning to manage your holiday let yourself then the task of creating a perfect experience for every guest can be demanding. You’ll need to manage changeovers, cleaning and any maintenance after each stay. Then there’s all the necessary administration; guest communication, booking management, dealing with queries or complaints, accounts and advertising.

Holiday rental owners spend an average of nine hours per week marketing and managing their properties. Do you have the motivation to work evenings and weekends – in addition to a 9-5 job?

Unruly guests

The primary problem with being a holiday let landlord is that you’re relying on guests to treat your property with respect. Unfortunately, no one is going to value your possessions as much as you do. Guests will use your white towels to dye their hair, leave toenail clippings on the windowsill and disturb your neighbours.

There will also be high-maintenance guests who demand hotel-style concierge services.

It’s part and parcel of owning a holiday let. There will be occasions when you question whether or not it’s all worth it.

Local restrictions and red tape

Many councils and residents have turned against second homes, which means laws and rules are changing. The proposed changes include a licensing scheme, restrictions on people buying holiday lets and tax changes.

Council tax

If you don’t qualify for business rates, then you’ll have to pay council tax. Council tax on second homes varies for different councils so check what you are likely to pay. Be aware though that some councils are charging a council tax premium on second homes. In Wales, the maximum level at which local authorities can set council tax premiums on second homes is 300%.

You won’t be able to stay there

If you want the maximum income from your holiday home, you won’t be able to stay there during the peak summer months. Indeed all your peak season weeks should be left free for bookings as they’ll be your most lucrative.

It won’t feel like a holiday

When you do finally get to visit your beloved holiday home, you’ll spend your ‘holiday time’ fixing, repairing, and replacing items. Accept that your holiday home is a business and together with the extra income you’ll enjoy, you’ll also have to accept the stained towels, broken glasses, stolen batteries and the shoe print left on your living room wall.

It’s your responsibility

It doesn’t matter whether you use a letting agent or a property manager, it’s ultimately your responsibility to ensure that guests’ expectations are exceeded. No property manager or cleaner will ever see all the things which are broken/dirty/missing like you will. And when the cleaners let you down – you will have to get your marigolds on.

Pros of buying a holiday home

Income potential

In an era of volatile stock markets, property investment is relatively low risk compared to other investments.

One of the benefits of investing in short-term holiday lets instead of long-term lets, is the potentially higher income that holiday lets can offer. Averaging 30 weeks occupancy per year, a holiday cottage can produce a very healthy return on investment. Cottages in popular locations can earn more in a week than a long-term let will generate in a month.

According to Sykes, the average annual turnover of a UK holiday let was £24,000 in 2022. Many successful owners who choose the right property and location exceed this, but you have to work hard and market your holiday let.

In addition to the potential capital appreciation of your property, you could also sell your holiday let as a business.

Increased demand for UK cottage holidays

Demand for self-catering holidays in the UK has soared in the past few years, as Brits have opted for holidays closer to home that are less hassle than foreign travel.

Also, with the adoption of ‘workcations’, more holidaymakers are choosing holiday lets as their travel accommodation choice. Somewhere they can have an extended holiday with their family and work in a relaxed environment.

Tax advantages of holiday lets

As furnished holiday lets are classed as being a business, you may be eligible for several tax benefits that aren’t available for buy-to-let landlords. Some of the holiday let tax relief opportunities include mortgage interest tax relief, business rates relief, capital gains tax relief and offsetting other bills against income.

The tax advantages for holiday let investors are certainly more attractive compared to long-term lets.

Your own holiday retreat

Owning a holiday home gives you the opportunity to enjoy holidays without the hassle of finding and paying for somewhere to stay. You can also share your retreat with your family and friends too.

Many holiday home buyers’ objective is for their holiday let to be their main home in the future, a home to retire to. In the meantime, it’s covering the expenses, saving you money on alternative holidays and earning you an extra income.

Supporting the local community

There’s been a lot of research on how holiday lets contribute to the local economy. Statistics show that guests staying in holiday cottages spend more in the local community than hotel residents. That means as an owner you’re giving something back to your community and the local economy, as you can recommend local shops, supermarkets, bars, restaurants, activities and employ locals.

Someone else does all the work

If you don’t have the time or desire to manage a holiday let yourself, there are holiday cottage agencies that will manage it for you. They take care of the bookings, changeovers and maintenance. You’ll need to weigh up if foregoing 25% of your income warrants the freedom it gives you, especially if you have a full-time career.

Should you buy a holiday home?

Deciding on whether to invest in a holiday cottage to rent out requires careful consideration. Whether you are investing to generate an income, supplement savings in retirement or simply cover the costs of owning a second home, they can be a rewarding endeavour – but stressful at times.

If you are buying a holiday home just for your benefit, you can have a lot of luxury holidays for what it costs to run a holiday home. But you could see it as a way of investing in your lifestyle and wellbeing.

If you have weighed everything up and have decided the pros  outweigh the cons, read our tips on buying a holiday home.