Buying a Holiday Home as an Investment
Like buy-to-let properties, holiday homes work as investments and part of a general investment portfolio. They make a very different investment type, however, compared to say stocks and shares, and may not be for everyone. If you’re thinking about buying a holiday home as an investment you need to consider several important factors.
Best use for an Investment Property
Buying a property for pure investment purposes obviously means you have to find a purpose for it. You need a way of generating income from the property beyond the basic capital appreciation made from simply owning the property.
The commonest options include long-term rentals and becoming a buy-to-let landlord; holiday lettings, a popular and more hands-on way of making money from a property; and running a bed and breakfast (B&B). Each of the three comes with its own pros and cons. Take a look at our list and see which one appeals most to you.
The ins and outs of buy-to-let investments
Prior to the latest tax regulations, would-be landlords couldn’t get enough of buy-to-let properties. However, the recent changes in tax relief plus hefty stamp duty on second home purchases has dampened enthusiasm a little. That said, letting property to long-term tenants does have some advantages over short-term or holiday lets:
- Demand is strong with potential to increase as homeownership falls in the UK.
- Apart from tenant changeovers (hopefully not very often), buy-to-let property is comparatively hands-off.
- Set-up cost is generally low and demand for unfurnished rentals means you could potentially make total savings by not fitting out the property at all.
- Buy-to-let mortgages are relatively easy to come by.
- Low wear and tear providing (and this is a big caveat) you’ve got good tenants.
But along with the swings, come the roundabouts:
- Tax breaks are diminishing, especially if you’re in the higher income brackets.
- Long-term rentals, even the steady ones, bring in less income than holiday lets. Recent estimates point to as much as a third less.
- Your income stream and the care of the property rely 100% on you having tenants who pay always and on time, and look after the property.
- It takes time, money and effort to evict a bad tenant.
The ups and downs of holiday home investments
Letting your investment property for holidays or short-term rentals (i.e. up to 31 days at a time) is another way of generating income. Benefits of holiday lets over long-term rentals include:
- Potential for much higher income – the rent for just one week in high season could equal that for the entire month in a buy-to-let property. This is easily the case for holiday lets in Cornwall, for example.
- Demand is strong for self-catering holiday accommodation and just as importantly, demand is growing.
- Holidays in some parts of England, e.g. Cornwall, have perennial appeal so you have a captive audience and an almost guaranteed income stream, particularly in high season.
- You have the chance to use the property yourself if you wish.
But holiday lets can lose a bit of the edge over buy-to-let properties because:
- Your set-up cost is much higher.
- Maintenance costs can also be much higher.
- Mortgages for holiday let properties aren’t too easy to come by and if you do get approval, expect to put down a 25-40% deposit.
Top tip – make your holiday let as hands-off as you like by employing the services of a property management company to take care of the latest rules and regulations, emergencies, key-handovers, cleaning, etc.
Best type of property for holiday home investment
Holiday homes come in all shapes and sizes from caravan to cottage and park home to palace. Whichever you opt for will depend on the following factors:
Price – arguably the first consideration for any holiday home investment and a major advantage for park homes – you can pick one up for around £15,000. Ultimately, the property has to be affordable for you while also ticking a series of other boxes…
Location – yes, the same old but just as important. When choosing your spot, remember you’re buying so that someone else can spend their holiday there, not you. Go for the views to die for – sea, mountain or lake typically appeal most.
Accessibility – the property needs to be easy to get to, preferably provide parking, or a permit for doing so in popular or restricted areas and at least communicate the steep footpath leading to the front door if that is one of the property’s quirks.
Property type – the quirkier the history or architecture of a holiday home, the more popular it typically is – glamping in Cornwall is particularly popular and can take the form of shepherds huts or yurts. However, well appointed, up-to-date and tastefully furnished homes that have considered the above-mentioned points will have a broad appeal for visitors throughout the year.
As with all investments, buying a holiday home comes down to weighing up the pros and cons to work out what’s right for you. On balance, there’s plenty going for holiday home investment if you choose the type of property and location with care. A property in Cornwall, for example, ticks the boxes both for long-term return and a steady revenue stream.
Ultimately, buying a holiday home as part of a varied portfolio of investments can give you excellent exposure to the market without having all your eggs, so to speak, in one basket.
This blog was provided by Cornish Traditional Cottages