Are you buying a holiday property to rent out?
Here are ten questions you need to ask yourself before you start calling estate agents.
If you want advice to help you answer any of these questions, contact us (our help is freely given). Just have a pen and paper to hand! We'll do our best to help you.
1. Why am I doing this?
What's your motivation? An investment? Annual profits? Somewhere to stay yourself? The answers will help you to determine what and where you should buy as well as implications for property management, tax and revenue expectation.
2. How will you pay for it?
Work out what you can affordAre you a cash buyer or will you need a Buy to Let Mortgage? Cumberland Building Society offer useful BTL Mortgages for short term let holiday properties.
Can you afford the monthly repayments? All this will help you determine your budget and possible locations in which to search for a property. For example, £400,000 property in Croyde, North Devon would cost a lot less ten miles further along the coast near Bideford. Allow around 15% for other attached costs involved in the purchase and essential maintenance, decoration and inventory expenditure to bring the property into a rentable state.
3. Will you rent it out as a holiday home all year round - or just for a few weeks when you don't plan to use it yourself?
If you want to offset the cost of managing and maintaining your property against revenue from rental, then you will need to have let it for at least 140 days a year (which means having it on the market a lot longer to hit your target. If you really want it for your personal use with a few lettings outside that time, then you will need to take into account tax implications.
4. Old or New?
Do you want to convert a barn or restore an old cottage, or buy a brand new property? This depends on whether you want a character property with the potential to increase its resale value (but with a lot of work necessary to achieve that), or an 'off the peg' new home built to modern building and environmental standards.
Keep in mind that location is key to a property's rental potential. A good looking house in a residential street can be a challenge. Character houses tend to have more appeal unless you're looking at beach apartments but tend to have higher maintenance costs.
5. How will you manage the maintenance of your property, including cleaning and gardening? Will you be living on the premises or nearby, or will you need to find and rely upon a team of people including but not limited to cleaners and a gardener. If you live outside the area, you'll need to find a pretty good plumber, electrician etc. who do 24-hour callouts (emergencies always seem to occur 'after-hours').
6. How will you market it? Will you do it yourself or through an agent? You've got to get those booking somehow. You may want to market the property yourself rather than pay commission and probably some other fixed costs to an agent to get bookings for you. If you do, factor in the price of building and maintaining a website plus Internet advertising on reputable holiday cottage directory sites such as My Favourite Holiday Cottages. Put together a marketing plan and budget that is at least 5% of your expected rental income.
7. Income: How do you work out prices and estimate bookings? Do some local research to help you work out rental prices. Find properties similar to yours in the vicinity of your property and look at their prices. Also, look to see how many bookings they have got. You'll also need to decide a price strategy s you won't be letting it at one price all year round! Decide what tariff bands will work best and whether or when you will allow weekend end or midweek breaks.
8. Location: Where do you want to be and why? Very important if you're going to max out on rental income. Don't buy somewhere cheap and think you can charge the same rental prices as a similar sized property in a more expensive area. Again, using the North Devon example, Ilfracombe and Croyde are two seaside reports less than eight mails apart, yet rental prices in Croyde can be twice those in Ilfracombe for similar properties.
When you first start to let, you won't have the comfort of having repeat bookings, so you will need to be competitive. Top tip: Red estate agents descriptions very carefully and do your research: There's a world of difference between the phrase 'Uninterupted views' and Uninteruptable views'.
9. What's your get-out plan? Is this a long or a short-term thing? Do you plan to sell it at a profit or leave it to the kids? What if it goes wrong or other unforeseen circumstances- will you need to be confident of selling it quickly? You will find it very reassuring to know that you can exit from the business should you need to without it being a complete disaster. Working out your options before you buy will help you in your choice of property and location.
10. How much will it cost to run? Aside from maintenance costs (and you'll be redecorating and replacing furniture more frequently than a domestic household, you'll need to note fixed and variable costs. Fixed costs include council tax and insurance costs, mortgage repayments. Variable costs include agency commission, utility bills, welcome packs, cleaning. Work these out before you do your pricing to ensure you'll not be out of pocket.
Contact us on firstname.lastname@example.org if you'd like further help and advice on any of these questions.