For many years, buying an investment property meant a residential BTL. With rent yields comfortably covering mortgage and other outgoings, plus virtually guaranteed capital growth, you couldn’t go far wrong. In fact, many people built up substantial portfolios based on shrewd BTL investment decisions that came good. Whether as a way to make a living or as an alternative to pensions provisions, private landlords had every reason to smile.
Since April 2017, it would seem that the tide has now definitely turned. New taxes on rental revenue, increased stamp duty for second homes and additional properties, and stricter mortgage lending requirements have all resulted in a sharp downturn in BTL investment uptake.
Instead, investors are now turning to furnished holiday lets where tax benefits unavailable to traditional buy-to-let properties can still be enjoyed, and gross yields of up to 12% are not unheard of. Perhaps unsurprisingly, Devon and Cornwall remain favourite destinations, especially since the recent fall in Sterling has led to more holiday makers favouring UK destinations.
If you are interested in investing a holiday home, taking professional guidance is highly recommended. H&S Surveyors, an established firm of Chartered Surveyors in Newton Abbot, South Devon, have some useful advice.
- Tax benefits
A major advantage of letting out a furnished holiday home is the generous tax treatment compared to a traditional buy-to-let. While the 3% additional stamp duty that now applies to all second home purchases cannot be avoided, you are able to claim mortgage interest tax relief and also offset the cost off furnishing and maintaining your holiday let from your pre-tax profits. Holiday lets furthermore do not attract Council Tax, while it is often possible to avoid local business rates too. When the property is sold, various tax reliefs can be applied to minimise your Capital Gains Tax exposure.
The only proviso is that your furnished holiday let must be let for a minimum of 105 days a year (and available to let for at least 2010 days) in order to qualify for these tax benefits.
- Rental yields
If you are investing for maximum rental yield, do check the vendor’s books before your make a commitment to purchase. Double check with a local holiday letting agent with experience in renting similar properties. What sort of rental income can reasonably be expected? Your annual rental yield will depend on your occupancy rate which on average is somewhere around 21-24 weeks per year, though can be substantially higher in the most popular areas.
Unlike regular buy-to-lets, furnished holiday lets come with high costs. You will need to factor in mortgage payments, utilities, insurance, taxes, cleaning and maintenance, as well as property management fees if you’re not local. While as much as half your gross income can be taken up by outgoings, you should still be able to earn around 6% net rental yield.
- Property survey
It’s all too easy to get carried away with a pretty country cottage or quirky coastal pad with huge holiday appeal – but don’t let your heart rule your head! Whatever property you are thinking of purchasing, make sure you obtain an independent valuation and property survey so you are fully aware of what you’re buying. This is particularly important if you’ve set your heart on a historic or listed building, or a property of unusual construction such as a timber framed building, or perhaps a lighthouse or a windmill.
An experienced Chartered Surveyor with local knowledge will be able to give you an overview of the property’s condition and identify any problems including as damp, subsidence, asbestos and any structural issues with the building. You can also use the surveyor’s report as a tool to help you renegotiate the purchase price if necessary.
Consult the local planning authority to find out about planned developments in the area that may impact on your decision to buy, as well environmental issues such as flood risks.
- Choice of location
Location, location, location applies to any investment property and particularly in the tourist industry. Choose somewhere that’s in a good position in a popular holiday destination to maximise your rental income. A bargain find may turn out to be a poor investment if no-one wants to stay there!
Look at transport links by road, rail and air, as well as parking facilities. Too much traffic nearby may put potential guests off but a remote hideaway that’s hard to find may not be ideal either. Assess the proximity to local amenities – is the property close to the beach, can you walk to the shops, what about pubs and restaurants, countryside walks, golf courses, ski slopes or local tourist attractions?
- Size and features
Before you make a decision on your holiday home in the country, consider who you are going to let it to – couples, families, groups? In order to maximise your occupancy levels, you need to understand what your target market is looking for.
Properties offering flexible bedroom accommodation, plus generous living and dining space, will attract most bookings. Depending on your budget, 2-3 bedrooms are ideal, particularly if some/all of them come with en-suite facilities.
While every property is unique, there are certain features that holidaymakers always seek out. Year round heating is important, while an additional woodburner or open fire adds the cosiness that many country visitors crave. A fast internet connection is a ‘must have’, particularly in rural settings where no WiFi may well be a dealbreaker. Outdoor space is always a bonus, even if it’s just somewhere to breakfast al fresco.
This article was written by Dakota Murphey.