I was thinking about the next in-business blog article to write and have recently made a decision on one of my properties, which for the last two years has been as a holiday let, to change it back to a normal tenancy let.
This article is about the decision process and what I see as the pros and cons of both types of let.
Property as a holiday let
The good thing about holiday lets is, if the property is in a good area, then you get good occupancy and you get paid quite high levels of income on a weekly basis. However, there are some downsides – depending on the agency you use to get the bookings (unless of course you get the bookings yourself), there will be a fee to pay, which in my case was 20% plus VAT.
The other things to consider are, as follows:
– Having a house-keeper to do the turn-arounds each week to change bedding etc. which is not cheap.
– You have to pay the council tax on the property.
– You have to pay the light and heating bills – which as we all know, if the person staying is not paying the bill, they will not care about wasting heat etc.
– You will have to pay for the TV licence, assuming you provide a TV, which is normally a minimum requirement.
– You will need to keep updating and buying new linen for the beds etc.
– There will be a percentage of people that stay who will wreck the place and despite having a deposit system, it will cost you in both time and money.
– If you go over the VAT threshold you will need to charge VAT on the income.
– There is more administration in dealing with a holiday let business.
Property on a tenancy let
Usually, with a tenancy let you get a tenant who will sign a 6-month tenancy agreement and apart from the usual repair bills, the other property bills become those of the tenant (I am ignoring things like mortgage interest and property maintenance, as these will be the same for both scenarios, except for different lending criteria). There will be a deduction from the rent from the agency, if you use one, but apart from this there are limited other costs associated with the property. The administration time is less and on the assumption you get a reasonable monthly rent with few voids, the profitability is likely to be similar or more than a holiday let and less hassle.
It is, but if you look in the right place and find a motivated seller, there are still property bargains out there. I just bought another property in Dorset and am acheiving an 8% return on it.
It certainly makes more sense to let property to local tenants, although the housing market is still unreasonably over price (both letting and selling) considering the current state of the country’s economy, it seems that just finding a reasonably priced property is quite hard for tenants and landlords alike.