Considering buying a holiday home

If you are planning to buy a rental home, or you're thinking about what to do with one you have just acquired, this is the place for any questions about starting out in the rentals business.
kancell10
Posts: 3
Joined: Tue Oct 23, 2012 10:38 pm

Considering buying a holiday home

Post by kancell10 »

hi guys,

just wondering if anyone could point me in the direction of some reading/advice about buying a second/holiday home in the UK.

we have a current mortgage of about 50% LTV on a First Direct offset account on our main property, and have some spare capital and monthly cash that we would like to invest for long term gain and family fun. as mortgage rates and property prices are reasonable just now, and the area i am considering is a popular summer and winter destination (2 hours from us), i am hopeful that i could balance costs so that the property would (if not fully, but almost) cover itself. intention would be to rent it out for 20 weeks of the year, and for the rest of the year my family would spend our holidays and weekends there.

i am aware there will be plenty of issues with regards to costs for letting, extended periods of no lets, marketing and website costs, weekly and annual maintenance and upkeep, council tax, personal tax implications, in amongst others, so any information would be appreciated, especially from anyone who currently operates a similar system.

thanks,

kevin
User avatar
Nemo
Posts: 7062
Joined: Thu Aug 14, 2008 10:15 am
Location: Norfolk

Post by Nemo »

Hi Kevin and welcome.

Well you struck lucky by finding this site for starters! There is an absolute wealth of information here; it takes a while to get your searches tweaked to find the right info, but using keywords with "and" between words, and searching specific sections helps. Some prefer to use google search to specifically search this site.

For starters, I read two books:
Starting and running a Holiday Cottage Business by Gilean Sangster
Daily Telegraph - Investing in a Second Home by Wendy Pascoe.

That's a good starting point and also making sure you're up to speed with the legislation concerning Furnished Holiday Lets, which has changed in recent years.

Most of the regular posters here are "in business" so to speak rather than second home owners simply looking to cover their costs, but I'm sure most of the issues you face will be ones we have come across!

The business link website used to be a really good source of information, but I believe that has been replaced by www.gov.uk. I just had a quick look and it seems absolutely rubbish by comparison to the old site now, but try searching there?
User avatar
PW in Polemi
Posts: 1781
Joined: Sun Oct 21, 2012 5:23 am
Location: A village in Paphos, Cyprus

Post by PW in Polemi »

Hi Kevin

My first thought is ...

just in case the mortgage rates do not stay as low as at present, and just in case you do not manage to rent for 20 weeks, have you done the "worst case scenario" maths?

Also, will you be servicing the place yourself, or will that be an added expense?
Dogs have masters. Cats have slaves!
DaveN
Posts: 302
Joined: Thu Sep 30, 2010 10:23 am
Location: Norfolk
Contact:

Post by DaveN »

Hi Kevin,
As Nemo says, I think you've already found the best source of information.

Check out the Inland Revenue rules on FHLs (Help Sheet 253). In order to be treated as a FHL (which has definite tax advantages) then you must make your property available for 210 days a year, and actually let it for 105 days, so you may want to reconsider the 20 weeks part.

I obviously can't advise on whether it's a good investment for long-term gain, but some food for though (all IMHO)...
If you are investing a smallish (i.e. mortgage deposit) amount of your own money, and funding the remainder with a mortgage, then you should be able (with time, effort, and flair!) to make a reasonable percentage return, but you will be exposed to interest rate hikes eroding or removing your profits.
Conversely if you are investing your own capital for the whole purchase, then the percentage return on capital will probably be considerably worse than other investments which are a lot less work. Unless you are relying on the value of the house increasing at a good rate (in which case your business model becomes 'property speculator'!).

None of which takes account of the satisfaction of running your own business, the personal use you can make of your property etc.

Good luck
Dave
Open for business.
User avatar
NonnaGiulietta
Posts: 122
Joined: Mon Oct 22, 2012 7:59 pm
Location: Alghero, Sardinia, IT
Contact:

Re: Considering buying a holiday home

Post by NonnaGiulietta »

kancell10 wrote:buying a second/holiday home in the UK
Darn it! :evil:
And to think that I'm trying to sell a country home near Alghero, Sardinia.
Too far from home, I suppose :roll:
Nonna Giulietta Apartment
NG on Facebook

God gave us the gift of speech, but has taken from us that of silence (Sergio Bolgeri, painter)
User avatar
wallypott
Posts: 1421
Joined: Sat Mar 27, 2010 9:50 pm

Post by wallypott »

One thing that springs to mind is when you are saying you will be spending your family holidays there, would that be during the school holidays? And if you go for a weekend, then the week will probably be a bit stuffed? With this scenario filling 20 shoulder season weeks would be a pretty stiff challenge, certainly in the first year.

We have a beach house, 40 minutes from home (and our 2 other gites). We use it for only one week in high season, otherwise we go most weekends from October to March, if it is not booked. High season for that house, includes Christmas and New Year.

This year (2nd year) that house has 171 nights booked, and last year we had 131 nights booked. Another thing to take into consideration is short bookings. Is it worth your while, time, effort etc to do short bookings? Are you going to do the meet and greet? If you are going to have a 4 hour round trip to do that - that eats into your free time quite seriously.

I think I would say that depending on your personal and family circumstances, it is more than a financial decision. I am a single Mum with youngish kids, I work 4 days a week for 11 hour days, and the first year it was really tough financially, physically and it ate into my time with the kids dramatically with them learning to clean or learning to stay out of the way.

I don't regret my choice to do it, but I have now made the choice to have someone else to do the cleaning, washing and ironing etc in order to gain some time back with my kids. I do all the meet and greets, but that only takes a couple of hours for me, assuming people turn up on time, as opposed to half a day or more for you. Now that things have been going a while I probably spend about 15 - 20 hours a week on admin and meet and greets. I also have a fairly good team in place so I don't (always) have to drop everything when things go tits up.

When all is said and done, I don't really make any profit, as it pays the large mortgage, cleaner etc, and anything extra goes back into the properties - new fridges, hot water systems etc. But at the end of the mortgage, I will be able to help my kids out with their Uni fees or whatever, and then hopefully be able to retire one day.
windrush
Posts: 224
Joined: Wed Mar 04, 2009 10:32 am
Location: North Cotswolds

Post by windrush »

DaveN wrote:
Conversely if you are investing your own capital for the whole purchase, then the percentage return on capital will probably be considerably worse than other investments which are a lot less work.

Dave
This is spot on. For us being holiday cottage owners has been more about having somewhere to go than about making a living, although the income from rentals has certainly come in handy. Now my OH wants to retire soon we've been looking hard at the figures and and have taken the decision to sell next year, we'd definitely get more income from investing the capital elsewhere. The OP hasn't said where they're thinking of buying but if it's anywhere near the Cotswolds PM me :wink:
marsh frog
Posts: 324
Joined: Wed May 11, 2011 4:28 pm
Location: England

Post by marsh frog »

A lot will depend on where you are planning on buying. We bought ours [with a mortgage] last year & hoped to spend a lot more time there ourselves but we have been overwhelmed with how popular it is even in autumn/winter. The reason I think this is is that we are 90 mins from London on the south coast. It means we rarely have a weekend when it isnt booked. I think if you are within 2 hours of a major city you can really tap into the long weekenders, but if you want it for yourselves at weekends this doesnt help you! If you want to use it yourself in school holidays that again will have a huge effect.

Have you considered whether you will accept dogs? We find that approx 40% of our guests have dogs which makes a huge difference to our occupancy rates.We still do well outside of schoo holidays with dog owners. For example we have a couple and their dog with a 2 week booking in November which would normally be quite hard to fill except weekends. We are fully booked in January and only have 10 nights left in February - all couples or a single person with dogs which again are normally not the best weeks to fill.Certainly worth considering.
Last edited by marsh frog on Wed Oct 24, 2012 2:57 pm, edited 1 time in total.
http://www.facebook.com/?ref=tn_tnmn#!/marshviewcottage
If you're fond of sand dunes and salty air....
kancell10
Posts: 3
Joined: Tue Oct 23, 2012 10:38 pm

Post by kancell10 »

thanks very much for all the replies, some great info above. i am especially interested in initially receiving advice regarding the financial side of things, so i can work out how the figures lie.

as various people have suggested, this would be driven by a desire to own a relatively modest property to give us options for holidays and (adhoc) weekends, and in the longer term an option to spend longer periods there when we retire. the property would be in our favourite area, aviemore in the cairngorms, scotland, which is busy for outdoor activities all year round and in particular during winter when the skiing season is on. i suggested it would be let 20 weeks, this was just a guess, the property would be available for rental 365 days of the year, and if not taken we would just head up whenever we can. as long as it could (even almost) cover itself and we got a few weeks in it a year, i would be satisfied with this arrangement, as this is not purely a business or financial decision, it is more of a lifestyle choice.

the property would essentially be something like one of these, a 2 bed semi of relatively recent construction, bringing in approx £500 a week in summer, and £300 a week in winter.

http://www.highlandholidayhomes.com/pro ... asp?id=258

http://www.highlandholidayhomes.com/pro ... asp?id=243

i need to speak to my mortgage company to ascertain what rates they would offer, obviously bearing in mind rates will rise in the future, but i can work out these fixed costs. i would intend just placing the deposit and mortgaging the rest. the costs i really need to consider, are the hidden costs that all you owners in the business know all to well about! the marketing, website, cleaning, maintenance, legislation, taxes, key handling (as we are not in area) etc etc. i am a massive fan of spreadsheets for such purposes, would anybody happen to have one they maintain and would be willing to share?
marsh frog
Posts: 324
Joined: Wed May 11, 2011 4:28 pm
Location: England

Post by marsh frog »

Beautiful part of the country!

I don't have a spread sheet, but a few obvious costs we have are -

1.Marketing - We market ours ourself with the majority of bookings coming from a premium advert on Holiday Lettings, which costs around £299 p.a. If you choose to let via an agent though, the commission can vary a lot. Most agents in our own area charge around 20% commission.

2.Cleaning. We don't live on site either so we employ a local company that specialises in second homes/holiday homes.Cleaning costs vary a lot but we currently pay £57.50 for a 2 bed house to be cleaned,the bedding laundered,beds made up,towels etc laid out for guests.Towels are charged extra by the item.I have friends who employ local ladies to do their cleaning and some of these live several hundreds of miles from their properties, but it works well for them.

3.Insurance etc varies a lot. There are a number of specialist companies who insure second/holiday homes.

4.Miantainance we tend do ourselves when we go there unless it is urgent & we have a few contacts for these situations.

5.Keys - we operate a key safe system.Guests are advised where to find this and the current code a few days before their stay.It is simple and secure. We had ours fitted by the company as this affected our insurance, but it depends on the key safe/insurance company.

6.We have been fully booked since April and are fully booked until the end of November when we have booked ourselves in!! We have easily covered all expenses associated with the property, but I guess we have been lucky for relative newbies!
http://www.facebook.com/?ref=tn_tnmn#!/marshviewcottage
If you're fond of sand dunes and salty air....
User avatar
Nemo
Posts: 7062
Joined: Thu Aug 14, 2008 10:15 am
Location: Norfolk

Post by Nemo »

Try this thread for starters.
kancell10
Posts: 3
Joined: Tue Oct 23, 2012 10:38 pm

Post by kancell10 »

guys, thanks once more for all your input, i can't believe how helpful everyone on here is. i don't use forums often, but whenever i venture on to a new one i tend to feel that there is always a negative attitude to newbies and their pipedreams from more established figures.

i will have a go making a spreadsheet and plugging figures into it to see how it works out. off the top of my head, i can't see them stacking up at all! from an agent in the area i was told to expect about 15 weeks let first year, 20 second year and gradual build up after that, my hunch is 30 would be about break even time!

i am tempted to dip my toes so to speak, with a caravan in the area on a 5 - 10 year lease and see how it goes. far less capital and probably a reasonable return. it's no long term investment but could provide plenty of short term fun and some valuable experience before full financial commitment of an additional property.
Post Reply