Due to all the restrictions on travelling abroad, staycations have rapidly risen to the top spot amongst holidaymakers. As a result, investors have turned their heads away from other ventures such as buy-to-let (BTL) properties. The market is booming, and the stats are there to back it up. No wonder why so many are getting on board at the moment.
Getting to know the ins and outs of holiday let investing is a fantastic way to race ahead of the competition. Not understanding the basics can be detrimental. So, for those looking to get involved with the growing trend, what are the current benefits and downfalls associated with holiday lets?
First of all, it is imperative to understand the financial side of the business – holiday lets require specialist mortgages. Recently, we looked at everything you need to know about the topic where we detail the criteria as well as advantages and disadvantages. As we discuss, there are lots of restrictions when it comes to a holiday let mortgage. You need to do your research and plan out an application properly before even sending it through.
Despite all the restrictions, a mortgage is more often than not required as the cost of your project cannot be funded all by yourself. The maximum amount that can be lent is 75%, so consider this as you will need to have a deposit of at least 25% on the property.
Make sure you abide by their rules and shop around for the perfect lender for your project.
Qualifying your property as a Furnished Holiday Letting (FHL) will ensure you benefit from a number of tax rules. As listed on the GOV.UK website, these are as follows:
- “you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
- you’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
- the profits count as earnings for pension purposes.”
BTL properties do not have these types of tax rules. As there are savings through this method, there is a potential for larger profit margins. Short-term lets can be a surefire way of making capital gains in a quicker period than that of a BTL property and should be seriously considered.
Owning a holiday let comes with several higher fees needing to be paid out. For instance, deep cleans need to be done before each visitor stays at the property. This could take time on your part to carry out or cost you for cleaners to do the job instead.
Take this into account when you are pricing the property, however. It can even be a selling point. People will demand safety from Covid before anything else nowadays. You can easily provide them with the reassurance they need, which will further cover you from any wrongdoing through your transparency.
Finally, make full utilisation of any tech-related products. Smart devices can be another draw to your holiday let. Getting into the property using a smartphone rather than a physical key saves time and effort for you to go about setting it all up. It is generally safer overall.
Video doorbells for added security can also ensure that your guests and property are protected from any unwanted visitors. You can even keep up to date with everything going on, which gives you added peace of mind. Something that may not be possible with a BTL property.
When weighing up the pros and cons, ask yourself how they compare to BTL properties. Capitalising on the current trend may prove to be the tipping point. But just be careful when making that all-important final decision. It is not an easy one to make!