How to keep the location, property and finances on track when you invest
If you want to benefit from the long-term outlook for UK property, you may be discouraged from investing in buy-to-let property by the property tax changes that have been forced upon the property investment community in recent years. But you don’t have to let tax concerns stop you from profiting from the UK property market. There are ways to get around the UK property tax changes as a buy-to-let investor.
For example, you could choose to benefit from the UK property market with fewer tax hassles by taking advantage of the tax position of holiday let investment property. This means you should get to keep more of the rental income and capital gain, without handing it over to the taxman.
In this article, you’ll learn how to avoid the trap of buying a poor holiday let property in an area that conjures memories of perfect holidays when you were a kid. Follow these 21 things to consider before buying a holiday let investment property, and you’ll be more likely to make a profitable investment in a great property and location.
Find your ideal holiday let location
To qualify for tax status as a holiday let investment property, the property must be available to rent by holidaymakers for at least 210 days of the year and rented for at least 105 of those days. To maximise holiday rental income and the potential for capital gain, you’ll need to buy in the right location. Here are a few tips to help you do this:
- Holiday lets in the best places are booked most often. A popular holiday destination is a must for holiday let investment, especially if you want to maximise year-round income.
- Holidaymakers will want to be close to amenities (except for the very few who want to holiday on their own on top of a deserted mountain – novel writers, perhaps). Therefore, you should buy a holiday let investment property near shops, restaurants and bars. Perhaps near to country walks, theme parks, water parks, golf courses and tourist attractions. Think about how your target holidaymakers will want to spend their precious time, and seek a location that offers this nearby.
- Invest in a location that is easy to get to. The more travel options available to get to a holiday let property, the bigger your target audience. Is it easy to reach by road, rail, boat and plane?
Provide the best property in the ideal location
Having decided where you will invest, you now need to consider what you will buy and how you will equip it. Here are a few property pointers:
- Make sure there is a parking space, as it’s likely that most of your holidaymakers will arrive by car.
- Pay attention to outdoor space. Most people work inside. When on holiday, they want to spend time outside. Whether your holiday let property is in the city centre or by the coast, consider open space such as a garden area, balconies and terraces. Should you provide a hot tub (a draw in both summer and winter)?
- Provide adequate heating and cooling. Properties that are too hot in the summer and too cool in the winter will suffer on ratings on TripAdvisor and other review sites – and that won’t be good for future bookings or letting prices.
- People expect holiday let properties to have high-speed internet and television – even though they are on holiday from work, people want to keep up to date with what is happening. Plus, a teenager without social media won’t be very sociable!
- Storage space should be adequate for clothes, and furniture must be adequate for the number of guests expected.
- Kitchens must be kitted out for self-catering holidays, and this includes a washing machine. A dishwasher might also be considered as essential – people who have one at home will want one, and those who don’t will welcome the rest from washing and wiping.
Make sure the numbers stack up
A great location and the perfect property doesn’t guarantee a profitable holiday let investment. The numbers must stack up:
- You must do your cash flow projections. A holiday let should command a much better rental price than a buy-to-let property, but there are other costs involved (such as cleaning and replacing damaged items) that must be considered. Also, you should consider how many weeks of the year your property is likely to be let as a holiday home.
- Consider what is most important to your – income or capital gain – and invest accordingly. This means structuring your finances in line with your objectives, too.
- Think about if you will use the property for your own holidays. If so, figure out how much income you will lose by doing so. It’s going to negatively impact your finances unless you use it when the property will not otherwise be booked.
- Check rental prices of similar holiday let properties near to yours. This will give you a good idea of the gross income you might expect.
- Check occupancy rates. If most holiday homes in the area are let for 20 weeks per year, you should base your cash flow projections on a maximum of 20 weeks.
- Use booking sites such as Airbnb and booking.com to gauge holiday rental prices and occupancies (and remember that some blocked dates are likely to be the owner using the property).
- Calculate potential net rent by working out your potential gross rental income and then deducting ALL costs. Remember your costs will include mortgage interest payments, property management charges, repairs and maintenance, insurances (including public liability), accountants fees, utilities, etc.
- Work out how many weeks of occupancy will be needed to at least cover your costs.
- The budget for annual maintenance costs (around 1% of the property’s value is a good rule of thumb).
- Ensure your holiday let investment property. You should take out insurance to cover buildings and contents, public liability, damage, and loss of holiday let income.
- Hire a good accountant to keep your finances and taxes in order.
- Don’t expect to make a profit from day one. There are expenses involved in setting up a holiday let business, and many of these will come in the first year or two. Plus, it takes a little time to build the momentum of letting. But once you begin to get good reviews, and providing you use appropriate online and local agencies to advertise your property, you should soon be hitting those cash flow projections.
Is a holiday let investment property right for you?
Investing in holiday let property could be the ideal opportunity for you to achieve your long-term lifestyle goals. Like any investment, you should research the market, buy in the best location you can afford, and be strict with your finances.
The above is an overview of the main considerations you’ll need to make if you are thinking about buying a holiday let investment property. For an in-depth appraisal of whether a holiday let property is right for you, contact Gladfish today on +44 207 923 6100
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