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In it for the money

 
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Mister PAYE



Joined: 03 Jul 2018
Posts: 4

PostPosted: Tue Jul 03, 2018 9:48 pm    Post subject: In it for the money Reply with quote

Hi everyone,

Looking forward to participating in lay my hat. I am a former btl landlord, looking at the potential for holiday letís and wanted to get peoples views on potential returns.

What is a good and achievable %return on money invested once all costs and tax is factored in?

Also has anyone got any experience of the comparative capital gains compared to other residential property?
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ianh100



Joined: 10 Jan 2013
Posts: 583
Location: Sherborne Dorset

PostPosted: Wed Jul 04, 2018 6:07 am    Post subject: Reply with quote

Its hard to say what the %return would be as that will depend on many factors. The costs and effort required are much greater, do not underestimate the costs to provide all of the furniture, bed linen and costs for a change over.

The much higher rents may look attractive but unless you are in a very desirable location occupancy outside peak times is hard.

As far as tax implications are concerned there are benefits, you can roll over the capital to invest in another business and I think the capital gains may be at a lower rate. You also still get full tax relief on mortgage interest. You can't take these for granted as policies can change.
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Mister PAYE



Joined: 03 Jul 2018
Posts: 4

PostPosted: Wed Jul 04, 2018 9:32 pm    Post subject: Reply with quote

Ok so can I ask another way? Do you achieve >10% post tax profit?
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zebedee



Joined: 12 Sep 2014
Posts: 1189
Location: yorkshire dales

PostPosted: Wed Jul 04, 2018 10:11 pm    Post subject: Reply with quote

If I can go back to your first question, ask yourself what sort of buy to let landlord were you? Did you invest in desirable property and areas for the capital gain or the lower end of the market for rental income without much gain in capital?

These days, holiday accommodation needs to be of a very high standard. Take a look at Visit England specifications for 4 and 5 star properties. You will need to purchase high quality everything, from the teaspoons through to the large equipment such as the make of dishwasher. You will regularly replace items that will still have plenty of wear left in them (possibly even move them to your own home!)

Every year you will face the uncertainty of whether or not you will achieve your desired number of bookings at the price you hope for.
You wonít carry the risks of a BTL landlord in that your guests donít have the legal rights of a tennant, but that doesnít protect you from carelessness or damage, or theft.
Tenants donít write weekly reviews about you that are in the public forum and will be used to influence whether or not you get another booking.

There is a lot of competition out there, and it can be impossible to control the degree of success you achieve each year.

You will have many more outgoings than a BTL landlord. Either you will lose a good chunk of what could be your profit if you sign up with an agent, or you will be constantly monitoring the effectiveness of several advertising sites to ensure you are Advertising in the right place.
In BTL you can have a flurry of work with a new tennant, then in a decent property should be able to sit back for 6 months or longer depending upon your luck. With holiday accommodation you will need to give it regular attention. Maybe daily attention.
You will probably never have another holiday without checking emails several times a day to deal with enquiries, email new arrivals and send out departure information.

The satisfaction from knowing you have provided great holidays and memories for people is crucial - if this isnít you, then consider something else.
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Giraffe



Joined: 26 Jun 2016
Posts: 410
Location: Cornwall, England

PostPosted: Wed Jul 04, 2018 10:44 pm    Post subject: Reply with quote

If you run you FHL as a business according to HMRC criteria, then capital gains tax on selling is currently 10%. I can't comment on comparison of capital gains achieved compared to other property. I have seen discussions that a successful FHL property might sell for an extra 10% of annual turnover compared to residential property, but I can't verify that figure. All I can remember is that I that I thought the additional value was very low. Someone else here might know.

Occupancy outside of peak weeks is difficult for me due to the size, location and housekeeping. (I already had the house rather than choosing it as a FHL). So on around 18 weeks' lets per year my annual profit over running costs would be around 15%. Not enough to make business sense as the figures don't include any costs for my time. But my great benefit is one if "in kind" - my family and I have have many lovely holidays there each year.

Certainly as a "return on investment" my FHL is not a patch on the returns from my stocks/shares investments. The main return for me is the increase in the house value over the 30+ years of ownership. Bit I'm not an accountant so I don't know how you factor that in, if at all.

Hope this helps. Giraffe
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zebedee



Joined: 12 Sep 2014
Posts: 1189
Location: yorkshire dales

PostPosted: Thu Jul 05, 2018 7:38 am    Post subject: Reply with quote

You must consider that many people got into holiday accommodation at a time when any losses could be off set against other taxable income. That rule changed and is no longer applicable.
An agent will take 30% of your turnover when vat is factored in. More if they supply your cleaner, window cleaner etc.
Your cleaner and laundry costs will run into thousands each year. You need a different person to someone who can do house cleaning, holiday lets (unless you are within walking distance) require a much higher functioning individual who will undertake minor repairs such as changing smoke detector batteries without troubling you. They also need a photographic memory to spot the things that regularly walk into guests luggage. This year it has included electronic kitchen scales, a caffitierre, chopping boards, previously spare blankets in the ottoman have been mistaken for dog blanket which the dog kindly left behind in its place, and so on.
You will probably need to pay a retainer for your cleaner when your property is empty.
Gardner, unlimited heating, high speed WiFi, water rates, smart TVs and depending upon the value of your property business rates (although Releif can be available, but may not be if you have more than one property) rubbish removal.

So why do we do it? Is it for the money? You get a better return on a good managed stocks and shares isa.
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Norfolk Canary



Joined: 07 Sep 2016
Posts: 60

PostPosted: Thu Jul 05, 2018 9:58 pm    Post subject: Reply with quote

Never heard of 30% agents fees including vat. I thought 24% was the going rate.
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CarolineJ



Joined: 29 Apr 2017
Posts: 64
Location: North coast of Scotland

PostPosted: Sat Jul 07, 2018 1:03 pm    Post subject: Reply with quote

Norfolk Canary wrote:
Never heard of 30% agents fees including vat. I thought 24% was the going rate.


Usually 24% + VAT, so 28.8%. You can negotiate downwards if you've got a property in an area that's in high demand or multiple properties.
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