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Bored of buy-to-let? How the holiday let business could earn you money

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Written by: Max Bailey
01/02/2017
Buy-to-let landlords have been hit with a range of tax measures, which taken together could seriously dent their profits. Could holiday homes be a good alternative?

We’ve all heard of the booming buy-to-let market, but the holiday lettings business can be just as financially fruitful – if not more. Holiday letting has been a popular money-earner for some time but is often overlooked for the quick returns buy-to-let investments can bring.

Our latest statistics show a 32% increase in domestic holiday bookings in January 2017 versus this time last year. The Lake District in particular is proving popular with customers, with bookings up 67%. Wales is following closely with a 40% increase.

Inbound tourism is also going from strength to strength with a 71% increase on UK holiday bookings from overseas visitors booking in January 2017. This supports VisitBritain’s data forecasting an increase in overseas visitors to just over 38 million visits in 2017.

So while it can seem daunting at first, there’s lots of opportunities to gain good returns on investment from holiday lets and there’s tons of support and advice available out there to help with getting started.

Here, we give you three top tips on how to get started:

1. Spend money to make money

There are a number of different ways to get into the holiday lettings business:

  • You might be renovating an unused outbuilding
  • Looking to buy a house specifically as a holiday let
  • Building a house on spare land
  • Or, you might have inherited a property

Whichever category you fit into will affect your initial start-up costs.

The first step is to look at your finances and work out how much money you have available to kick start the investment. There are a number of factors to think about. Renovating or building from scratch can bring unexpected costs, while investing in a new property often comes with a significant start-up cost. But remember there are mortgages specifically for holiday lets available and usually these come with shorter terms and flexible rates.

Next it’s important to think about what type of holiday let you want to offer. Many visitors are looking for somewhere affordable and comfortable, so you don’t have to necessarily offer a five-star hotel standard lavish retreat.

We’ve found that a holiday let owner can earn up to £40,000 a year, but of course the more your property has to offer, the more you can expect more in return.

Take the average house price in Whitby, one of our most popular destinations. At £178,418 this means you could break even on your investment in 5 years, based on a £40,000 yearly income and accounting for some costs for renovations. Many holiday letting owners wait until they’ve reached this milestone and then re-invest in their let to upgrade and add in features to be able to charge guests more. However, those that can afford to spend more upfront could enjoy higher returns immediately.

Be sure to think about what potential guests will want – and what they might pay more for. Added perks like a log fire, garden or swimming pool can help your earnings. Providing a hot-tub can bring you an extra £8,000 per year on average. Lots of our holiday let owners make money on repeated annual bookings too, so it pays to ensure any guests enjoy their first stay.

Overall, your holiday let should represent good value from a guest’s perspective, as well as offering you a healthy return on your initial investment costs.

2. Location, Location, Location

Your potential income from a holiday let can largely depend on your postcode – but it’s just as important to make the most of where you are.

It’s always going to be an advantage to be near popular holiday hotspots, or places of natural beauty around the UK. Our research shows that the seaside town Whitby, in Yorkshire, is one of our most popular holiday let destinations, with Scarborough and Padstow also in the top ten destinations – allowing holiday let owners to charge more. If your property isn’t within reach though, don’t panic, holiday lets can still work anywhere across the UK.

Just make sure you know your local area well.

Whether you have a property already or are looking to buy, find three selling points your holiday let has from its surrounding location. These can be landmarks or nearby activities such as cycle hire, popular walking routes or nearby good value restaurants. Make sure to promote these when you open for business.

It’s worth bearing in mind that location can affect your booking cycle and your payment strategy. Cottages in the Lake District are popular all year round so we find owners charge guests a lower price across the year but other places may be more seasonal and costs increase significantly in the summer.

A myth about holiday letting is that you have to live close to your property. This is completely wrong, if your property is far away it’s still a manageable investment. Many holiday let owners outsource managing handovers and cleaning to make their lives easier.

3. Keep your price right

You’ve prepared your property, hunted for the right location and are already looking forward to growing your retirement pot. The only thing you need to sort out is how much you’re going to charge guests.

Bear in mind that charging more means you’d need fewer booking throughout the year, while lower pricing requires a higher number of bookings to reach target earnings. Getting your tactics right is crucial.

Invite your friends and family to stay in your cottage for a week or so and ask how much they’d be prepared to pay as guests.

The next thing you need to do is research the competition. What holiday lets are available in your area? Look for similarities and differences in the facilities offered or location and emphasise these via your advert or website. Have your property ready to go by January, as it’s a popular time for bookings.

Using an online agency can be also really useful.

One of the most important things to remember is that holiday lettings is a weather-driven business. There’s demand all-year round, but this peaks in the summer meaning you can charge more. In total, 36% of bookings are completed in the first quarter of each year so have your pricing strategy correct in time for the bookings rush.

Holiday letting is one of the most resilient property investment industries and is likely to become even more popular over the next few years. If you want to earn a steady extra income, do some research and see if you want to give it a go.

Max Bailey is a property expert at Sykes Cottages, an independent agency for holiday cottage lettings

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