One or two people may recall that I've been looking for a suitable property in the West County (UK). By and large the apparent value for money is poor with huge premiums (circa £400,000-£600,000 more than comparable single dwellings) being asked for fairly run down/poor spec properties in need of considerable investment.
Happily, this last month I have seen several properties have their asking price reduced which I think both reflects a bit of realism and quite possibly difficult market conditions. Even so, running projections on the potential yield from these properties gives no more than a pre-tax 5-8% return on the capital employed after marketing and operating costs - based on an apportioned value for the rental properties over and above my living accommodation and taking no account of my time or the cost of the money invested.
That really seems quite poor to me.
To give me a sense of comparison I've looked at other properties and property types elsewhere in the country (e.g. holiday park lodges) and it would appear that I could achieve a significantly higher return in practically every case. I could even do far better, in a financial sense, buying a very nice home for myself and a large town house for investment, converting that into flats to rent long term - possibly getting on for double the return I could apparently get with holiday lets of the type I've been looking at.
So I'm faced with a bit of a dilemma: my heart tells me to follow my dream but my head is telling me otherwise. If I intended doing this as a "hobby" then fair enough but I would be selling up and divesting myself of my other business interests to dedicate myself to this near full-time - and investing a 7-figure sum. It would be my living, so I can't be cavalier about it.
Sorry for the ramble but I just wondered if others had gone through a similar process and how they squared the apparent conflicts?
Unrealistic expectations for return on investment?
Well I'm sorry that the figures don't stack up as well as you'd hoped, but better to find out now, before you've committed.
I didn't go through the scenario that you have, in that our home is settled and didn't come into the equation. However, as you can see, I went the holiday park "lodge" route and hope I don't live to regret it! I wouldn't put my figures out on a public forum, but suffice to say, there is a good profit to be made, well above your net figure.
I would have thought that if you're willing to put the time and extra effort in, there would be more profit to be made renting property out as holiday lets than long term rental?
There are no easy answers, but I guess you must factor in quality of life, following a dream, pursuing a lifestyle and that isn't always about the bottom line profit. You are looking in an incredibly expensive part of the country which doesn't help.
Hope you resolve your dilemma. A further thought - I would take the family home figures out of the equation. Does that make any difference? We live in prime commuter belt and would never be able to justify the cost of buying here if it was part of a business and we were looking at the bottom line. It's our home and therefore the money side, to us, is irrelevant.
I didn't go through the scenario that you have, in that our home is settled and didn't come into the equation. However, as you can see, I went the holiday park "lodge" route and hope I don't live to regret it! I wouldn't put my figures out on a public forum, but suffice to say, there is a good profit to be made, well above your net figure.
I would have thought that if you're willing to put the time and extra effort in, there would be more profit to be made renting property out as holiday lets than long term rental?
There are no easy answers, but I guess you must factor in quality of life, following a dream, pursuing a lifestyle and that isn't always about the bottom line profit. You are looking in an incredibly expensive part of the country which doesn't help.
Hope you resolve your dilemma. A further thought - I would take the family home figures out of the equation. Does that make any difference? We live in prime commuter belt and would never be able to justify the cost of buying here if it was part of a business and we were looking at the bottom line. It's our home and therefore the money side, to us, is irrelevant.
Yes, I've estimated the cost of the rental properties by subtracting the estimated cost of the family home if it was on its own (sites like Zoopla give a good indication of what nearby similar but single properties go for), so the figures only relate to the rental properties cost.
Holiday rental properties in the South West do command high rents but the cost of acquisition is eye watering due to the premium applied to suitable properties. It would appear fairly easy to fill the peak weeks but you have to have something very special to fill all the other weeks and there are a lot of very nice properties competing for the vastly reduced numbers of out of season visitors.
Before I did the sums I was confident that holiday lets would give the best returns but if my calculations aren't wildly out, long term lets (house converted to flats in a town) can easily deliver more for a lot less work and probably lower risk.
The dream's not over yet though - just a little dented
Holiday rental properties in the South West do command high rents but the cost of acquisition is eye watering due to the premium applied to suitable properties. It would appear fairly easy to fill the peak weeks but you have to have something very special to fill all the other weeks and there are a lot of very nice properties competing for the vastly reduced numbers of out of season visitors.
Before I did the sums I was confident that holiday lets would give the best returns but if my calculations aren't wildly out, long term lets (house converted to flats in a town) can easily deliver more for a lot less work and probably lower risk.
The dream's not over yet though - just a little dented
I actually think that I make less money and have higher overheads doing holiday rentals than I did renting the same properties long term. However bad tenants are gone in a week or two as opposed to staying forever and being impossible to shift.
I used to make €12600/year, no bills, no overheads and very little time invested. This was pre-recession and I wouldn't be able to get the same price now, I don't think.
This year I will make about the same, but all the bills are mine, plus cleaning, insurance, being nice, meeting and greeting etc. The biggest investment is time - the whole property and all the out buildings now have to look immaculate pretty much all the time. It is agreeable to look out my window now, but it comes at a price.
I used to make €12600/year, no bills, no overheads and very little time invested. This was pre-recession and I wouldn't be able to get the same price now, I don't think.
This year I will make about the same, but all the bills are mine, plus cleaning, insurance, being nice, meeting and greeting etc. The biggest investment is time - the whole property and all the out buildings now have to look immaculate pretty much all the time. It is agreeable to look out my window now, but it comes at a price.
Good, keep your pecker up!
I think you do have to decide what you actually want to do. I would not want to be a BTL landlord. That's just about earning money, I don't see that as a particularly fulfilling career (apologies to any BTL landlords here!).
Managing holiday lets is about giving someone a great holiday experience and fulfilling their dream, so there's a great deal more emotional reward in it for me.
I think you do have to decide what you actually want to do. I would not want to be a BTL landlord. That's just about earning money, I don't see that as a particularly fulfilling career (apologies to any BTL landlords here!).
Managing holiday lets is about giving someone a great holiday experience and fulfilling their dream, so there's a great deal more emotional reward in it for me.
That's so true Nemo, I completely agree. I do both and the HR is so much more fulfilling, and interesting.Nemo wrote: Managing holiday lets is about giving someone a great holiday experience and fulfilling their dream, so there's a great deal more emotional reward in it for me.
Kathy
Waterfront location in Le Faou
"My goal in life is to become as wonderful as my dog thinks I am."
Waterfront location in Le Faou
"My goal in life is to become as wonderful as my dog thinks I am."
I have to agree with the ladies above. When my ex and I bought my abandonned farm in Brittany, we were advised that it would be more financially viable to buy individual houses that were "already done". This has a lot to do with the cost of renovating in France. But that is not what we were looking for .... it was and still is a dream - loads of hard work and ever changing goal posts, but at the end of the day, I give people happy holidays, I can't think of a more satisfying job than that!
HR or not
GAM
We have both in Bournemouth - 2 holiday apartments and 3 assured tenancies. The 2 holiday lets & 2 of the tenanted flats are 2 bedroomed/2 bath/open plan kitchen & lounge and approximately same purchase price.
The holiday lets achieve roughly double gross and a third more nett than the tenanted flats.
However, the time & effort that goes into the holiday lets is many times greater than the tenanted ones, almost full-time with the laundry and changovers (we do it all ourselves) - the rewards from a personal point of view are far greater, so much more enjoyable talking to guests on the phone, looking after the website, meet and greets, etc.
So if you take our time into account then the holiday lets have a slightly poorer nett return but are much more enjoyable to run. I actually dislike it when we have to find a new long-term tenant and do all the checking and paperwork involved, no fun at all. We'd have 5 holiday lets if we could, but the leases on 3 of them don't allow businesses, anyway we couldn't manage it all ourselves.
Holiday lets everytime.
===
Just thought of something else: The maintenance costs on the tenanted flats are greater, due I believe to the fact that we aren't there every week to check everything is working properly, such as dishwashers and washing machines (built in), we have had one go wrong every year - but never in the holiday lets.
Steve
We have both in Bournemouth - 2 holiday apartments and 3 assured tenancies. The 2 holiday lets & 2 of the tenanted flats are 2 bedroomed/2 bath/open plan kitchen & lounge and approximately same purchase price.
The holiday lets achieve roughly double gross and a third more nett than the tenanted flats.
However, the time & effort that goes into the holiday lets is many times greater than the tenanted ones, almost full-time with the laundry and changovers (we do it all ourselves) - the rewards from a personal point of view are far greater, so much more enjoyable talking to guests on the phone, looking after the website, meet and greets, etc.
So if you take our time into account then the holiday lets have a slightly poorer nett return but are much more enjoyable to run. I actually dislike it when we have to find a new long-term tenant and do all the checking and paperwork involved, no fun at all. We'd have 5 holiday lets if we could, but the leases on 3 of them don't allow businesses, anyway we couldn't manage it all ourselves.
Holiday lets everytime.
===
Just thought of something else: The maintenance costs on the tenanted flats are greater, due I believe to the fact that we aren't there every week to check everything is working properly, such as dishwashers and washing machines (built in), we have had one go wrong every year - but never in the holiday lets.
Steve
"Write something, even if it's just a suicide note"
"There is no human problem which could not be solved if people would simply do as I advise"
"As for my amnesia, I've had it as long as I can remember"
Real name: Steve
Gender: Male
"There is no human problem which could not be solved if people would simply do as I advise"
"As for my amnesia, I've had it as long as I can remember"
Real name: Steve
Gender: Male
Sounds like you're going through the same scenario as me. I had orginally thought to put money in to a rental property in the UK but the returns against aquisition are poor.
Add in the time/hassle factor and I'm wondering if it's worthwhile. Of course the property would increase in value...but.
Mousie (still thinking)
x
Add in the time/hassle factor and I'm wondering if it's worthwhile. Of course the property would increase in value...but.
Mousie (still thinking)
x
One martini, two martini, three martini floor!
That is not something I'd rely on for several years hence.Mouse wrote: Of course the property would increase in value...but.
I can also see the possibility of areas that are saturated with second homes suffering a glut on the market as people decide to sell up due to financial necessity, plus the change in the tax laws that will affect the "hobby renter". The combination of tax change and depressed value is likely to mean that second homes will no longer be a zero cost prospect if they can be let for a few weeks here and there, and that's what an awful lot of people have been relying on for a long time.
The flip side is that maybe the number of properties available for holidaymakers will reduce, and those properties that are run "professionally" will flourish.
Who knows? I don't.
