With buy-to-let becoming arguably more complex, investing in a holiday let could be a profitable alternative.
It’s been widely reported that significant numbers of buy-to-let landlords have been fleeing the market in the wake of new regulations and increased taxes in recent years. Thanks to tighter government controls on safety standards and energy efficiency, some people see being a landlord as no longer the simple job it used to be and are looking elsewhere for higher returns and fewer responsibilities.
One alternative to a standard rental investment is a holiday let. A Furnished Holiday Let (FHL) is classed as a business rather than an investment, which means that owners are entitled to many of the tax advantages that buy-to-let landlords no longer get. In order to be classed as a FHL for tax purposes, a property must be available to let for at least 210 days a year and be let commercially to paying guests for short periods of between three and 31 days for at least 105 days in the year. That’s quite a specific requirement. Potential investors need to find somewhere that’s likely to be popular with tourists, but not so saturated with holiday lets that supply exceeds demand.
For Rosella Short of Winkworth in Ferndown and Southbourne in Dorset, the figures speak for themselves. “In high season, a holiday let can earn you as much in a week as you would in a month from a buy-to-let. Holiday let landlords can earn up to 30% more yield than with a buy-to-let, delivering an 8% return, while buy-to-let investors aim for a yield of around 6%.”
Obviously, location is key. The average occupancy level for holiday lets is between 20 and 24 weeks per year, but high-performing properties in popular locations can achieve over 40 weeks booked. Rosella says: “Holiday lets located in beautiful, rural areas or near popular tourist destinations in the UK tend to deliver high rental yields over a year. We certainly find that there is high demand for holiday lets where we are on the south coast, close to award-winning beaches and the New Forest.”
Demand for UK staycations remains strong as many people are still wary of potentially disrupted travel plans and additional costs due to the pandemic. With this in mind, investing in a FHL might seem to be a no brainer. Theoretically, holiday home owners should be able to achieve high yields while also being able to take advantage of holidaying in their homes themselves. However, for investors who already own a property, any second home purchase (whether a holiday let or buy-to-let) will of course incur the additional 3% stamp duty charge, which needs to be factored into calculations, while popular areas with high demand for holiday lets also come with high property prices.
On the market
This two bedrooom apartment on Boscombe sea front has fantastic sea views from all rooms, direct beach access and a 24 hour concierge. It’s on the market with Winkworth Southbourne 01202 434365 for £475,000.
This idyllic cottage in the picturesque village of Martin has lots of character as well as three bedrooms and a large garden. It’s available for sale through Winkworth Ferndown 01202 434365 for £600,000.
This ground floor apartment in Stourcliffe Avenue is close to the golden sandy beach at Southbourne and has a sunny and private rear garden as well as two bedrooms and a large and bright living room. Winkworth Southbourne 01202 434365 is marketing it at £350,000-£375,000.