If you’re lucky enough to be in the position where you are able to buy a second home, it might be difficult at first knowing whether you should buy-to-let the property on a long-term basis, or buy the property as a holiday home for shorter stays. Both avenues pose different advantages, but here we will explain why letting a holiday home may be more beneficial overall than a buy-to-let property.
The ROI can be brilliant
A holiday let is a great idea following the increase in UK ‘staycations’ in recent years with the number of people booking self-catering holidays in 2018 rising 10% from 2017 according to new research. With this steep year on year increase, a holiday home can bring in even more ROI in places that are sought after such as countryside getaways like luxury Lake District cottages, that can expect to command higher weekly rates.
At peak season, a holiday let can bring in as much profit in a week as many buy-to-let properties would in a month. Because of this, holiday let landlords can earn up to 30% more yield than their buy-to-let counterparts, delivering an 8% return annually, (higher in sought-after holiday destinations), while buy-to-let investors aim for a yield of around 6%. This is often due to the shorter stays that a holiday home brings, particularly in the summer.
You could claim 100% tax relief
A brilliant advantage of a holiday let compared to a buy-to-let is that holiday let owners are entitled to many of the tax advantages that buy-to-let landlords no longer get, due to your home being classed as a business rather than an investment by the HMRC. Because of this, you’ll be eligible for a full mortgage tax relief, with no current limit on the mortgage interest amount incurred that you’re able to offset against profits, which is great news.
In addition, you’re able to offset some of the furnishing costs of your home against rental income, whilst also deducting expenses such as council tax, utilities, cleaning, property management and advertising costs.
You can stay there yourself
With stays often being shorter than buy-to-let homes, you have more of an opportunity to utilise the time between guest stays to take a trip away yourself. Holiday lets often give owners more flexibility when it comes to deciding when to keep the property free for yourself or friends, due to many bookings being last minute or for shorter lengths of time. There’s also the relief that tenants are only brief, often a long weekend or a week, so the possibility of a long-term nightmare tenancy is less likely.
The overall investment is more fulfilling
A holiday home is a brilliant investment to earn an extra income and, while it can seem like a daunting task, you don’t have to do it all my yourself, as many people often run a holiday home as a family or enlist the help of a property management company.. Even though a holiday let may require more involvement in the tenancy process due to a higher turnover, the overall ROI and flexibility that you have as an owner is rewarding. On top of this, a holiday home is somewhere to keep for retirement to move into and enjoy your golden years.