Profitability

[Alan Knighting]

There is something bothering me and that is the real profitability of holiday letting businesses.

When I starting my holiday lets 5 years ago I used a simple formula. Capital investment -v- net annual rentals gave me a theoretical annual return of 20%. I compared that with what I could get from a high interest rate deposit with a UK Building Society - at the time about 7% p.a. The comparison was very much in favour of the holiday lets, ignoring my own investment in time and the personal effort devoted to my guests.

My properties are priced and paid for in £’s sterling and the relative weakness of the £ has had an adverse impact on my income in €’s (I live in France full time). Naturally, I also suffer from having to accept a lousy exchange rate from the Banks (the last one was £’s to €’s @ 1.4081), together with rather excessive transaction charges and commission fees for carrying out totally simple transfers.

Fortunately, nobody has ever asked me to accept credit card payments but if they did I think I would be faced with another charge of x% of the value of the transaction. Also, some of the Listing Sites want to charge per enquiry or per booking.

All of these things are relative to my turnover, not to my profit margin. They eat disproportionately into my real profitability. If I am not careful I could easily find myself working for Banks, currency exchange organisations and Listing Sites. I might be better off simply putting my money on deposit.

Don’t get me wrong! I am not on the point of selling, moving on or shutting down! I am doing very nicely thank you but I do think there are far too many agencies living off my back!

Am I unusual in calculating my real profitability? What do others think?

Alan

[tansy]

Yes I agree Alan....also we have noticed that folk are starting to argue the price..I turned down a booking for Christmas from a chap that 'offered' me on the basis that we may get a last minute...it hasn't happened this year, so we have 2 houses sitting empty this Christmas.

I am more worried about the pricing now...I don't want to drop my prices as we have had not the best tenants when we did before BUT with the influx of Gites and their prices we are finding that our houses are starting to sit empty off season a lot longer now. no problems with the price in the summer we're virtually fully booked already!

Still it will keep the income down - so the tax bill should be down! And at least the value of property is rising - not UK standards but it is going up.

[paolo]

Alan,

I know what you mean, but I find the amounts that go to others' pockets quite small.

For instance when I take a bank transfer from abroad I usually pay £6, unless the sender has done the decent thing and paid my end themselves.

For an instant credit card payment from anywhere in the world I split the 3.9% PayPal commission with the sender, so for £400 I pay £7.80.

And listing sites I think are tremendous value.My marketing budget is maybe 3% of turnover and if I had any more bookings it would be hard to do the annual repairs and maintenance.

Someone else on this forum (was it Christine?) said she was practically fully booked using only one paid listing site ad!

So although there are a few organisations siphoning off their cut from me, I am still happy with how low my outgoings are.

[BungleBob]

We have encouraged people to use our "health check" tool which calculates overall profitability, including a figure for capital appreciation AND rental profitability.

Give it a try at:
http://www.vacationrentalsdirectory.net/healthcheck.php

I'd be interested to know how it shapes up against your own calculations.

Rich

[Alan Knighting]

Rich,

That looks like a super tool and I will try it as soon as all the IT work is finished here.

Alam

[chachiluz]

Hi

I am new to this and it looks that thanks to the tool I will never do well. Nevermind... � should never give up

Thanks for the forum and everyones ideas

Chachiluz