How to Buy Property For Holiday Lets
How to buy the right property to maximise your holiday let business venture
UK holidays are more popular than ever. Following the COVID-19 pandemic and subsequent lockdowns, many British holidaymakers still opt for domestic holidays - choosing to stay in a vastly-improved range of property offerings that vary from simple apartments to luxurious countryside manors. For investors looking to purchase property to let to guests, understanding how to buy property to use as a let is vital.
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Holiday lets can be a very profitable venture if you can find the right property and raise finance to support your purchase. There’s a huge amount of potential in the UK holiday market, but there’s a lot to consider before signing on the dotted line. From understanding your legal rights to taking into account ongoing running costs, you should speak to an expert about your plans and ensure your investment can reach its full potential.
So, if you are already in the holiday let market or you are buying your first property, keep reading to learn about how to buy a property for holiday let - or speak to the team at Rangewell today about holiday let finance and let’s work together to turn your dream into a reality.
What is a holiday let?
A holiday let is defined as a property that is let out to guests for short periods throughout the yard - this is defined as 31 days or less. This could be one of several different types of property, including homes, apartments and even lodges.
A Funished Holiday Let (FHL) is the most common type of holiday let. An FHL must be let for a minimum of 210 days per year. As a result, it’s vital that you make the right investment when buying a holiday let property, and have a strong business plan to ensure continuous bookings throughout the year.
As opposed to a typical buy-to-let property, an FHL is treated as a taxable business income, rather than an investment property. In order to be classes as a FHL, your property must be:
- Actively let the property for profit
- Available for guests for at least 210 days per year
- Let to the general public for at least 105 days of the 210 available.
- Adequately furnished to qualify as a FHL.
In addition, any stays over 31 days fall into the ‘long-term’ category. This must be limited to 155 days of long-term occupation per year.
So, when it comes to buying a holiday let, you’ll need to take all of this into consideration. You may be eyeing up a property that will work well for your own personal use, but you’ll need to take a step back and determine whether this is a good business investment before you make such a significant purchase.
Know your market
Market research is key to understanding the type of property you're going to need to maximise profits. In some areas, a city centre apartment will be more desirable than a larger home and in others, a rural farmhouse will appeal.
Understanding the current market also allows you to innovate. Some new holiday let owners can differentiate themselves from the competition by providing something novel - whether that's being the first to offer shared gym facilities as part of their apartment listing or a hot tub in your farmhouse.
The main decision you need to make it based on finance - which properties can you reasonably afford and how do those same property types perform in the market area? While apartments may be popular in busy city areas, other types of holiday let may be even more successful but command a far higher asking price.
Finding the right property
The first stage of buying a holiday let is taking the time to determine your budget and your priorities. The holiday let market is vast. An investment of this sort could be anything from a small lodge on a caravan site all the way through to a 12-bed mansion suitable for large families and events.
Understanding your target market and their budget will help you to decide if a property is a good investment. For example, a holiday lodge on an established site with access to communal facilities brings with it a lot of existing value. You may benefit from the site’s general marketing and reputation, but this will come with a cost.
If you choose to buy a standalone property and market it yourself, this could be just the ticket for those looking for a quiet getaway. So, let’s take a closer look at the different types of holiday let properties available.
Static caravans and lodges
One of the most common types of holiday lets are lodges and static caravans located on an established site. You can purchase these holiday lets either directly from the site owner/company as brand new units, or second hand from previous owners.
When you purchase a lodge as a holiday let, you and your guests will benefit from the facilities on site. You may also be able to advertise your let through the site owner, on their website or via third party holiday companies.
However, these benefits come with a cost. Site fees, utilities, insurance and depreciation are all costs to consider when looking to invest in a property of this sort. In addition, you will want to make sure the site allows holiday letting, as some owners may only allow residents to holiday on site.
Houses and cottages
Thanks to the rise of holiday let websites like Airbnb, there are so many different types of holiday lets available to potential investors. Where previously, you may not consider purchasing a traditionally residential property like a terraced house as a holiday let, there are now an increasing number of properties popping up as homes away from home for UK holidaymakers.
If you are looking to invest in a holiday let in an urban area, then a house would be the perfect solution for you. As an alternative to big hotel chains, Remember, this is different from traditional buy-to-let, so make sure you speak to Rangewells’ experts to secure the right financial support for your investment.
UK city breaks are just as popular as ever. Many holidaymakers prefer the convenience of staying in a private apartment over a hotel, making this a very popular option for aspiring holiday let owners. Buying an apartment to act as a holiday let may be more difficult than owning a house, however. Most apartments are leasehold, meaning you do not own the land the property is on. Before investing in any leasehold property, you’ll want to make sure there are no clauses within the lease agreement that inhibit your ability to let the property out ona short term basis.
In addition, these apartments are often in managed buildings, and there’s a cost associated with that. Communal areas like hallways, gardens and lifts all need to be maintained and you, as the property owner, will need to pay towards that.
Finally, you’ll need to take into account the neighbours. Many apartment buildings have resident associations and they may not be best pleased with you letting out your apartment to holidaymakers. When buying an apartment for a holiday let, it’s best to seek legal advice before securing the property.
Mansions and estates
A large property like mansion, estate or even a castle, can be a very profitable investment if managed correctly. Properties like this have very high running costs, but can also mak fantastic holiday lets as group holidays are very popular right now. From hen and stag parties, through to weddings, corporate getaways and even big family holidays, there is a big market for large occupancy holiday lets.
There are a few different ways to purchase a holiday let of this scale. You may choose to purchase an operating holiday let and continue the business, which is ideal if you want something with requiring minimal downtime. However, this will require a huge upfront investment as you aren’t just buying a property, it’s a whole business.
So, you may also be thinking about investing in an old farm property and carrying out a conversion. With this sort of project, you might get a bargain on the property but you’ll need to taking into account the time and investment involved in applying for planning permission and bringing the property up to the right standard for holiday let.
Whatever king of property you’re thinking of, we can help you get there. Learn more about deposits, bridging loans and development finance from our team of experts. Get in touch to start your holiday let finance application today.
Building a holiday let
In the last section, we explored the idea of buying an existing property to use as a holiday let. But what about if you want to build your own from the ground up? Perhaps you have found the perfect plot of land… now what? Financing a holiday let build is a lot more complicated than a purchase, and it will likely require a few different types of financing including property development finance.
From funding the initial land purchase and development, through to interior design and marketing, going this route can be very expensive and will require strong financial backing. There are a lot of moving parts and, as a result, significant potential for delays. You need to have a strong business plan and flexible budget to ensure success in building your own holiday let.
In summary, you'll need to progress through stages that include buying land, securing planning permission, contracting your construction team and having the finished product evaluated. All of these require finance, though if you are already progressing through this schedule you may have better offers. For example, if you're already a landowner and have planning permission agreed, it will be easier to secure finance for the development.
If you are thinking about buying land to build a holiday let or building on land you already own, get in touch with Rangewell’s team of finance experts and we’ll talk you through the funding requirements and considerations. With access to the whole of market, including a number of specialist lenders, we’re well placed to support your holiday let venture and help your find and secure the finance you need to succeed.
Expanding your holiday let
This article has been focused on purchasing property to use as holiday let accomodation, but for those who already own property, you may also need finance to buy the materials and labour required to fund an expansion or conversion. See how Rangewell can help you do just that in this case study where we helped arrange finance for a family business to use to expand their successful farmhouse holiday cottage with new units.
Making the purchase
Once you've identified the right property, you'll need to negotiate with a lender to determine the finance you can access, which then allows you to place an offer with the seller. In the same vein as any other property purchase, the lender will perform due diligence themselves to determine if the asking price is reflective of the property value.
The difficulty you may run into is that a holiday let may have higher value as a business than the property value, which can lead to lenders hesitating or offering a poor finance agreeement. For example, a busy city centre apartment that has two years of trading history on Airbnb showing successful bookings may be priced to reflect the guest demand rather than the property value.
You'll need Rangewell on your side to help highlight the listing's value as a holiday property to the lender and to negotiate a better offer on your behalf. Choosing the right lender is just as vital, they need to understand the holiday let sector.
Whether you decide to compete with the market via a similar property or you want to raise more finance to purchase something unique, Rangewell can help you build your business plan and attract lending. Get in touch to learn more.