Have you heard that holiday lets are booming in the UK? With the rise of staycations, more and more people are seeking attractive holiday cottages within a day’s drive from home, and in some areas demand is outstripping supply. On this basis, buying a holiday let should be a simple an obvious choice. However, there is much more to it than what appears on the surface, as will become apparent as we dive into some truths.
What are holiday lets?
A holiday let is somewhere that you rent to holiday goers, right? Yes of course, but there is more to it. Holiday lets come under the investing category of serviced accommodation, which also includes short-term lets for contractors, business travellers and professionals such as doctors and consultants. Holiday lets, as the name implies, are targeted towards people on vacation who seek their own place to stay as opposed to a hotel or bed and breakfast.
In the interests of taxation, Serviced Accommodation is considered Furnished Holiday Lettings (FHL) and must be operated as a commercial business where special tax rules apply. For a more comprehensive look at Serviced Accommodation why not have a five minute read of our blog post: What Is A Holiday Let And Why You Should Own One?
The popularity of holiday lets
Over the last ten years the popularity of holiday lets has gradually grown. What was once a niche and expensive form of holiday accommodation has been normalised into a preferred choice for many people. This has in part been driven by online travel agents such as Airbnb, Booking.com and VRBO, who have made the process of booking a holiday let hassle free and safe.
It is easy to see how renting an entire property can have both financial and convenience advantages over a hotel, especially for larger families. As the world has experienced recent travel restrictions, the decision to spend a vacation within driving distance has seen the holiday let market boom. The online travel agent Cottages reported a year-on-year 200% increase in booking enquiries during the last period of 2021.
Investors have followed the trend, benefitting also from the ease of booking management provided by the online travel agents. It does not take a quantum mathematician to calculate the high returns that can be achieved from owning a holiday let. Certainly, the potential of high-income without the complications of estate agents and long-term tenancy agreements has created a cash-magnet for many. But what will the future hold for the untrained?
The risks of buying a holiday let
Undoubtedly, some people will have joined the holiday let investment trend with the added impetus of low lending rates and an additional holiday, the one that removed stamp duty for many. The question then arises, how many of these people have invested in professional property education and have correctly calculated their numbers and completed their due diligence?
What may seem like a great opportunity today could be a different scenario further down the road when interest rates change, and the market is in a different place. The incentivised property buying rush of 2020 – 2021 pushed property prices to an all-time record in some areas. The irony being that many who benefitted from the stamp duty holiday paid a considerable amount more through elevated property prices.
How people fare in the long-term is yet to be seen, however it does indicate the importance of quality education before following the crowd. The Asset Academy community is abound with stories of people who made uneducated investments, only to come to the conclusion that proper education is necessary to ‘do things the right way’ and actually make a profit. Following the crowd has also created other problems that have been further reaching and should be considered when investing in holiday lets.
The recent rise in popularity of holiday lets has combined with second homes to place increased pressure on remote local communities. Certainly areas of Cornwall and Wales in particular have seen a massive influx of non-residential owners. The desirability of such areas has pushed property prices above the affordability of local residents, causing much anger and frustration.
It is in such circumstances where the responsibilities of the property investor are apparent beyond the welfare of their tenants. There is a much wider social duty where investments should operate in the interests of not just the property owner but also the wider community. This is true for not just holiday lets and serviced accommodation but for all property investments.
Through education it is possible to identify profitable investment areas that do not follow the masses. To find creative solutions that produce greater long-term returns because they focus on a niche that has not been exhausted. There is much more to serviced accommodation than quaint cottages in Tenby.
Should you buy a holiday let?
While property trends and house prices will rise and fall, property investing will endure as a long-term strategy. House prices have steadily grown along with the demand for holiday lets. Serviced accommodation as a whole looks set to continue its path of growth. Alongside providing for holiday guests, there is increasing demand for work retreats as more people have been able to work remotely.
On that note it is important to consider that holiday lets are only one use for a property and a way to future proof your investments is to ensure you have multiple exit strategies. For example, if a property fails as a holiday let could it work as a family buy to let, sold for a profit or even be redeveloped into flats? Maintaining options for your investments is a core learning that we teach through our courses.
If you are new to property investing and want to learn more, you will be able to find a host of useful information throughout our website. To get started, we recommend our blog post Why Invest In Buy To Let Property as a great introduction to the not so obvious benefits of property investing.