Converting residential let to holiday flat - advice please

[LeanneA]

Apologies, this may be a long post!

I own a 1 bed flat, which I have let on a residential basis since 2000. In 2010, it had a major flood, resulting in costly repairs (its in an EA red zone and flood insurance has a very high excess, so hardly worth claiming and I am conscious to keep the insurance going and not risk a refusal/withdrawal of cover by claiming too often!). Just before Christmas, it flooded again, this time the tenant understandably has had enough, and moved out, and I am faced with another bill to decorate, refloor and refurbish it all again.

I always thought it would be difficult to use the flat as a holiday let, but talking with the Freeholder over the weekend (he also has a flat in the building which has been flooded twice in 2 years), we are looking at all options - obviously selling at the moment is likely to be a no-go, so he is wondering about letting on a holiday basis, say Feb-Oct, and leaving it empty over the winter months when the flood risk is higher. Therefore he would have no objection to my doing the same, and infact we could compliment each other as people wanting larger accommodation for their holiday could rent both adjoining flats for their family.

So, I have been looking into the cost implications and wonder if anyone has any advice. My flat is not mortgaged, so no issues there. I would need contents and PL insurance - had a quote online last night for less than £150/annum which I thought quite reasonable. I would have to change from CT to Business Rates - another flat nearby is already holiday let, and having done some research, their BR is £1350/annum, for a considerably larger property - 3 bed/sleeps 6-8, so I am guessing my BR would be £800'ish at the outside. There is also a small business exemption available at the moment, which could mean free BR until March 2014.

I would need to pay for TV licence - £145.50, PAT testing - I am estimating <£50 as some charge per item and some per property, might even reduce if me and the other LL can share the test.

Obviously we would then have water and power (no gas), on top. Wondering about a key/coin meter for power, giving a small balance for the start of the week, and clients can top up as they go - is this the "done thing"?. Water is metered with a drainage/sewerage charge on top, which will be mine to pay.

Then we have the currently unquantifyable costs - advertising/website, changovers (may do this myself but property is 25 mile round trip away, so might be able to employ someone locally to clean/change linen etc), linen/towel cleaning, breakages/repairs etc - anything I've forgotten?

I also need to furnish and equip initially, but as it will only sleep 2, this won't be a huge outlay.

I think it will appeal for a holiday let. Its in a quiet location, mainline rail station less than 10 minutes level walk and has its own private off road parking for anyone driving. Its in a very historical town setting in the South West, with several good pubs and restaurants. Convenient for the coast, country walking and lots of major attractions.

Working on an estimated letting season of 26 weeks max, and a minimum charge of £200/week low season (obviously increasing through the peak months), I have calculated annual rental income of £5,200 at the lowest rate - however, that is assuming 100% occupancy which is unlikely in the first year without any repeat business/customer base to rely on. Then have to take out the already estimated costs above (should clear £4K'ish), then the unknown costs of marketing, running and maintaining, so I am looking at perhaps £3-3,500 per annum - bearing in mind this is the minimum rental tariff, as I am hoping peak season will top £395/week, so in theory this is a worst case scenario.

My current residential letting rate is £400/month, plus have no utilities/CT, TV license or contents insurance. However, I don't know how long it will take to secure a tenant this time, having major headline news about the flooding, and also fear another flood episode will put me back to square one with a tenant having to be rehomed whilst work done to repair the property, and maybe even surrendering their tenancy as they can no longer face living there with a flood threat hanging over them.

I know the repairs would still be required it if happened with a holiday letting arrangement, plus I would have to cancel, refund and recompense any cancelled holiday makers - I assume I could insure against such losses?

I am in such a quandry over this as the property is currently empty and nearly ready to re-let, but don't want to get a tenant in and scupper the holiday proposition, if it might work out to be the better option. Also, conscious that the season is fast approaching and if I don't get it up and running soon, will miss the boat for this year's trade, as people are already looking and booking!

Sorry for the long post, but felt full background was required. Anyone any ideas, suggestions, advice, thoughts for or against, please feel free to comment. Am I being naive about what I am likely to achieve booking/rent wise? I am expecting to run it for the first year at a possible loss or hopefully breakeven point, just to build it up, but as a total newbie to this, I feel I may have missed something vital in my cost calcs and trying to get up to speed very quickly on the possible pitfalls.

Thank you if you have got this far and all replies gratefully received!!!!

[Pmagowan]

Is it not possible to spend some money on flood defence measures. I know there are door and window guards that make a house next to watertight unless the water is 10 feet high. Re the technical stuff about converting to a holiday rental, I will leave that to someone more expert but I would have thought you would eat away any profit pretty quick if it gets flooded every few years.

[LeanneA]

Thanks for reply.

Eviro Agency have spent big money on a flood defense scheme for the town which didn't work. A 2nd phase is underway but not due for completion for 12 months +.

The property had flood doors fitted last year, which would have been fine, if the fire service had not opened them to check that all residents were OK and assist in evacuation, allowing 18 inches of water outside the building to flood in!

We also have other flood measures installed around the building itself, which mitigate the problem, but nothing can completely safeguard it.

[Nemo]

I know the repairs would still be required it if happened with a holiday letting arrangement, plus I would have to cancel, refund and recompense any cancelled holiday makers - I assume I could insure against such losses?

Can you if you are a known flood risk? There's also a lot of work and some very unhappy holidaymakers if their holiday is cancelled. In some cases, depending on the time of year, it might be nigh on impossible for them to get an equivalent holiday wouldn't it?

[LeanneA]

I know the repairs would still be required it if happened with a holiday letting arrangement, plus I would have to cancel, refund and recompense any cancelled holiday makers - I assume I could insure against such losses?

Can you if you are a known flood risk? There's also a lot of work and some very unhappy holidaymakers if their holiday is cancelled. In some cases, depending on the time of year, it might be nigh on impossible for them to get an equivalent holiday wouldn't it?

Thank for replies.

Obviously I would have to check out the insurance side of things in more detail.

I appreciate the hassle and cost of having to cancel someone's holiday at the last minute, but the property has flooded only twice in 2 years, so hopefully there would not be any increase in this frequency. Both events happened in November, which is why I would prefer to let the property seasonally over Feb-Oct, to try to avoid it, but I guess sh1t does happen.

Surely, there have been instances for whatever reason when a holiday let cannot be available and there must be contingencies to cover this? There are many members here - has it ever happened to anyone and how did you deal with it?

Replies seem rather negative to my plans at the moment ... perhaps I am barking up the wrong tree with this whole idea

[Pmagowan]

I think that obviously the major problem is the flooding. 2 times in 2 years seems awfully frequent to me. Perhaps you could talk to the local fire brigade if that was the main cause of last times problems. Normally they will be happy to call out and help with advice on preventative measures. Perhaps even your insurance company would help fund it as it could save them significant money. It really does not seem to be a good situation and I think long term letters would be in a better place to handle such issues if advised up front of the risk. A holiday maker would not want to deal with flood defences and would probably see the whole thing as a big turn off. Perhaps, as you say, if the risk is very small in the summer it could work OK but I get the impression that for the size of the apartment you would only be making a small amount of profit for considerably more work unless you are in an area where prices are high. You would need to cost it all very carefully.

[Nemo]

There have been members here who have had problems of course. I can't think off hand which, but not everybody posts regularly.

I think the reason we're negative is that when it's a known risk, it's difficult to imagine working with that. We all have unknowns thrown at us, but two floods in two years seems like a huge upheaval! However you've dealt with it before, so no doubt you can do it again.

I think you shouldn't underestimate the stress and trauma involved if you do have to cancel weeks of peoples holidays. A neighbour of mine had a burst pipe two winters ago and it took six months before it was lettable again. The park it's situated on had promised to get it done by Easter, so she took bookings for May and June that she subsequently had to cancel. It really put them off letting and they almost decided to sell. If guests knew you were a known flood risk would they book? Put it this way - would you want to book a holiday at your place?

We're not trying to put you off unnecessarily, but there is a lot of work involved with holiday letting; a great deal more than AST's so you have to be sure it will work for you.

[LeanneA]

Yes, I would want to book a holiday at my place! For 8 months of the year it is totally idyllic, but over the winter it can be a problem. My hubby was up there working today, sat outside on the deck in the January sunshine having his lunch, and rang me at work to tell me how lovely it was!

I differ a little with the idea that a long term tenant can deal with the flood issue better. My latest tenant lost personal belongings and family photos in the recent flood, whilst with a holiday let, the major loss of property would be mine. However, I can see where you are coming from with the grief it would cause in having to cancel someone's hard earned 2 weeks summer break.

[kendalcottages]

Just a thought, but where do you stand from a responsibility / insurance point of view if guests staying in your property have possessions damaged in the event of a flood?

...with a holiday let, the major loss of property would be mine.

That may or may not be the case, depending on what they bring with them...

Maybe this a non-issue and the responsibility lies entirely with them, but I'm just mentioning it in case it's something that's not been considered.

[Wendy@NorthIdaho]

Cornish Maid, I think I'm a little more on the optimistic side of things here. Can you find out the history of flooding in the area? Over the last 50 years does it only flood in November? If so and you seem to be willing to only rent it out during the "good" months I see no problem, our cottage in the winter has water seepage, we've done all we can to mitigate it but it's the nature of the "beast" we sit on a rock! BUT no one rents during that time of year and we roll up the carpets, the furniture it lifted up on blocks and the water is either on cement or tile so it really does no damage.

It's been a frustrating experience because we don't like the situation but we've learned to deal with it and our guests love the place when they use it and they don't have to deal with the water when they are there. I do think that's the key though....

So if I were you I'd just do a bit more research into when the flooding happens and take reasonable measures, insurance will probably be the biggest hurdle as over here anyway flood insurance is very expensive. Hopefully with all that your guests will be blissfully unaware that your property occasionally floods.

Let us know how it goes,
Wendy

[LeanneA]

Thanks Wendy. Thats is exactly what I am planning to do. Leave it empty from Oct-Feb, store all the furniture and keep everything crossed!

Don't get me wrong everyone, I am not just looking for the answers and advice I want to hear, but the whole idea of the holiday let issue was to maximise the income from the property through the "good" months to be able to afford to leave the place empty through the bad ones. I don't want to inflict the flood issue on anyone, but if I (can????) let now to a residential tenant, I could be faced with another flood in the latter months of the year, and all the grief that brings them. I helped the tenant clear his belongings, and it was very upsetting for both of us, but I cannot just give up on letting the property because it "might" flood once a year ...

I am hoping the next phase of flood works in the town may help the situation, but that is not due to finish for 12 months or more. Freeholder is also fitting sumps and automatic pumps around the building, to evacuate any water that does build up, to help prevent it coming inside.

The flood history that we know of is November 2012, November 2010, and December 1999 (year before I bought it). The 2012 and 1999 events were the worst - since 1999 there have been major Environment Agency improvements in the town, but the recent flood defense system seems to have failed in the 2012 event. In 2010, no-one opened the flood doors, the water rose to about 1 foot outside the property, and subsided again within a couple of hours. There is a tidal river nearby, and if an exceptionally high tide corresponds with prolonged torrential rain, it causes a problem. As soon as the tide drops, the water disapears. The only damage then was about an inch of water seeping through the brickwork, and we had to remove/replace carpets. We didn't even need to redecorate that time - 2 weeks with dehumidifyers on 24/7 and tenant moved back in!

As I said, I don't want to inflict the flood issue on anyone, and fear I may have problems attracting anyone to live there at all, whether for holidays or permanently, so just trying to gain any income I can and exploring all options. However, I am also conscious that time is ticking and if the holiday option would work, I have to act quickly to try to get it up and running in time to secure at least some bookings for this year's season.

Still undecide though, what a nightmare

[Pmagowan]

Do your maths. You need to find what sort of price similar properties go for in your area over the summer months. You then need to have a reasonable expectation of occupancy as, especially early on, I would expect you will not be full every week. Then you need to remember that to achieve a good holiday let business takes a lot of work. Look at all the posts on here!

If, after all that, you still think it adds up then go for it and good luck. It might very well be the best solution for you.

[Unibond3]

Hi Cornish Maid

The response to your posting seems to have dwelt upon the flooding issues, so I'll take another tack in case you're looking for further information on what's involved in setting up and marketing your apartment as a holiday flat.

You seem to have been very thorough in your research thus far, but here are a few things that may or may not be relevant:

Refuse collection: if you're paying business rates, you may find you have to pay an additional fee to have your bins emptied. Check this with your local council.

Advertising: If you're going alone (an agency would be looking at 20% plus VAT), then you'll need to invest in 2-3 listings on directory sites. Focus on online marketing as this is where the market operates. If you peruse LMH you'll find lots of feedback on which sites work and which ones to avoid. You could easily find yourself investing £500 on advertising. The other question is whether to have a website. The growth in the number of online bookings these days makes having your own site an increasingly important proposition - and save you time!

Moving on from that, I'm sure you'll have considered inventory - 4 complete sets of bed linen and towels, matching cutlery and plates etc - if it would help, e-mail me privately and I'll forward a sample inventory.

Finally, from a personal experience, don't have a separate electricity/gas meter. Nowadays, people expect this to be included in the price and are suspicious of 'extras'. If you're worried about costs incurred by people leaving on emersion heaters or central heating, you can have timer switches fitted. You can also get an emersion heater switch which offers the choice of staying on for 30m, 45m or 60m before switching off.

I hope these suggestions will be of use! They are based on my experiences, but the great thing about LMH is that there will always be others happy to contribute a different perspective. You just have to take them all on board and work out which ones fit your particular situation, but every comment is well-intentioned.

Good luck!

[Nemo]

Yes, I would want to book a holiday at my place! For 8 months of the year it is totally idyllic, but over the winter it can be a problem.

I'm sure it's lovely, I just meant would you book it if you knew about the flood risk. Anyway you have put a bit more perspective for us on the flood risk, so I can understand that you would feel reasonably safe letting during the summer months.

I think research is the key now, to getting an exact figure on what you can achieve rental wise through the summer months. As you own the property outright, I can see that you want to maximise income during the minimum risk period, which seems quite sensible, given your options and previous experience. Can you chat to an holiday letting agent or two in your area?

I would try to keep the fittings and furnishings as upmarket as you can to attract the highest rent and making it easy to let. Don't cut corners, as a lovely good quality flat will attract the holidaymakers where a lower quality one will not.

You certainly won't be too late to attract holidaymakers this year; I find bookings trickle in all year round including many last minute ones; even last July for example I let two short breaks with days to go. Your market will be mainly couples without children I assume, and they can holiday any time free of term time restrictions etc. Are you considering a good quality sofabed to increase occupancy, bearing in mind you need enough space for them to sit and dine as well? Pet friendly? That is a big market.

Keep us posted as to where you get to.

[LeanneA]

Thanks Nemo,

I am in contact with a couple of local letting agents and have one pencilled in for a visit to the property next week, by which time we will have finished the decorating and it will be a "blank canvas" ready for us to furnish and equip. Having spoken to their rep on the phone this morning, they have several properties in the area and the location of mine is known to them. She said there should be absolutely no problem letting as it is a very popular area, central to the whole county and she has stayed there herself recently. I am hoping a visit will confirm this "in the flesh" and give us an idea of the tariffs we could charge and some other pointers.

I have already done an inventory and got an idea of what we will need. Before having a family my hubby and I used to stay in self-catering holiday flats/cottages so we have an idea of the quality to go for and the type of equipment and supplies that are desirable - we will look at it from the "outside" and cater for what we would expect as holiday clients!

Checked on business rates requirements this morning, and there is a small business relief available at the moment, meaning we do get 100% rebate for the next financial year, so thats obviously a step in the right direction!

Thanks for everyone's replies. The way I am looking at it is to give it 2 years as a holiday rental to try to prove itself. I can always go back to a residential at any time, but unless I try the holiday idea now, I will never know! Once I have kitted it out, I can always let it to a tenant at a later date, already furnished, so its a good investment anyway.

I am also getting an estate agent out to value the place (with full knowledge of the flood issue) just to keep my options open!

I am sure I will be back with more questions in due course, but thank to everyone for now - a lot to get my head around!