How to Start a Holiday Let Business

Running a holiday let is a rewarding business venture that is becoming increasingly common in the UK. Where buy-to-let was once the default choice for property investors, holiday letting is surging thanks to a combination of lockdown behaviour shifts, digital platforms such as Airbnb and even a rise in pet-friendly owners seeking holidays at home. 

To succeed in the holiday let market, you need to research property types, areas and marketing strategies to ascertain which investments will be right for you. You’ll also need to raise the finance required to purchase suitable property, invest in furnishings and then market your listing. 

In this guide, we’ll explain how to get started as a holiday let business owner. As finance experts, we’ll also discuss the finance options you may apply for and how to secure the best offer from the market’s most suitable lenders.

What is a “holiday let” defined as in the UK? 

A holiday let is a property that the owner lets out to guests for short periods ranging from a single day to longer 31 day stays. To qualify as a Furnished Holiday Let (FHL) for beneficial tax advantages, you must let a property for a minimum of 210 days per year. 

It’s worth qualifying as a FHL because, unlike buy-to-let properties which are taxed as an investment, FHLs are treated as taxable business income and become eligible for lots of tax relief and incentives. The rules that dictate being classed as a FHL include:

• You must actively let the property for profit
• It must be available for guests for at least 210 days per year
• It must be let to the general public for at least 105 days of the 210 available. 
• Any stays over 31 days fall into the ‘long-term’ category and stays of this type must be limited to a total of 155 days of long-term occupation per year. 
• The property must be adequately furnished to qualify as a FHL.

Advantages and disadvantages of holiday lets

The benefits of holiday let ownership are varied and can be appealing when compared to buy-to-let options: 

• Popular areas command high sums – with weekly earnings eclipsing monthly rental values in many tourist destinations. 
• If you qualify as a FHL, you can claim capital allowances for many tax-deductible items used to improve your let, such as furniture additions and renovation work.
• Tax benefits such as deducting mortgage interest from profits on your furnished holiday let. 
• When not booked by guests, you can use your own holiday let properties for personal breaks and family stays. 

However, there are downsides too, and as a potential investor looking into holiday let ownership, you need to weigh up the requirements, responsibilities and financial aspects of the process to determine if it’s right for you. Negatives include:

• Maintenance and repair work is more regular and therefore costs more for holiday lets compared to tenanted property
• Any earnings from furnished holiday lets over £85,000 mean you must add VAT to your costs, potentially dissuading guests from booking. 
• Marketing and managing holiday lettings takes more manual work as you need to secure regular guest bookings. You could instead explore hiring an agent but that would add to your costs. 

With upsides and downsides, deciding whether you want to pursue holiday lets is a personal decision. From a profitability standpoint, holiday lets can be incredibly lucrative provided you secure bookings: in a single week during peak season, you can earn more than double what a buy-to-let might provide in a month. For example, letting a 2-bed holiday home in Cornwall can command prices as high as £1000 per week in Summer versus average monthly rental values of around £800-1000. 

Buy-to-let property may be more predictable over a longer period of time, but holiday properties have the potential to offer far higher return if your FHLs become popular. If you want to get involved in this exciting, developing property sector, you’ll need capital like you would for any other business. 

Securing finance for a holiday let business depends on your experience, your application and your existing property portfolio. Here at Rangewell, we act on your behalf to secure finance for clients who are brand new to holiday lettings or for existing owners looking to expand. 

We’ll help you understand the lender’s market, identify the ideal provider for your needs and negotiate the loan you need to get started. Get in touch below to learn more, or continue reading to learn more about how you can start your business on the right footing. 

Researching the market

Holiday lets are marketed in a variety of ways, from popular online platforms like Airbnb to private listings promoted via word of mouth. As you begin to explore your potential business idea, you must first understand what type of existing holiday homes are available, how they’re being marketed and what guests want in each area. 

It’s crucial to do this early, because you can’t effectively buy a property without having insight into the wider holiday home market. You need to know what competitors are doing before you make a purchase decision, or you may be left with a property nobody wants to stay in. 

If, for example, you were planning to buy a holiday let you’d spotted in a busy city centre location, you would need to have looked at other listings first to ensure you’ve got an idea of pricing, availability, amenities and guest demand. We’d advise analysing the following:

Location

• When you’re considering starting a holiday let business, you need to know how the location of any given property might impact guest demand. 
• If you already own a property and want to convert it into a holiday let, look at what type of other lets are available in the area and how they’re styled, equipped and marketed. 
• If you don’t own a property yet, look into what sort of properties are located in any target area. 
• Remember that location impacts guest expectations and subsequently what you need to offer – the nature of a stay dictates what kind of investment you need to make in your property. For example, a city centre apartment will require less furnishing than a multiple bedroom holiday cottage in the countryside, but due to popularity and proximity to certain tourist destinations the apartment may be the more profitable option. 
• Proximity to amenities is a key factor in guest bookings. When analysing a holiday let opportunity, consider location compared to train stations, nightlife, hospitality venues, tourist attractions etc. 

Facilities 

• Despite being utilised for short-term stays, guests have high expectations from most holiday lets thanks to an overall rise in popularity and convenience. 
• Relatively small investments in key facilities may allow you to charge higher fees and therefore increase profits. Research competitors to see how their options impact their pricing. Hot tubs and open fires, for example, can add as much as 50% to your revenue. 

Marketing

• What sort of marketing activity do competitors in any target area perform? How do their listings get in front of guests? 
• High quality photographs of your holiday let will supercharge your bookings, so factor in the price of a full shoot to your costs. 
• Do you want to use a management company to take care of the let on your behalf? You’ll need to factor in their costs and processes before you proceed. 

Once you’ve got a good idea of what sort of area and property is right for you, it’s time to progress to purchasing your first holiday let. 

How to finance a holiday let

When you’re planning to run a holiday let you’ll either already own a property you want to convert into a FHL, or you’re looking to purchase one. These two situations necessitate different approaches. 

Existing property owners

If you already own the property you wish to convert, you’ll need to inform your current mortgage lender about your plans. They may cancel your mortgage, but failing to inform them can lead to even harsher penalties. 

Instead of worrying about the consequences of being honest, contact Rangewell first to discuss your plans. We’re not affiliated with lenders and can help you switch your mortgage product to something more suited to holiday let investment, securing favourable rates and terms that help support your fledgling business. 

Even if you own the property outright with no mortgages left to pay, you may still require finance if you choose to pursue holiday lets as a business venture. Whether it’s to purchase more property or simply convert or furnish the existing one, we can also help you secure development finance or asset finance that will help you fund your efforts. 

Buying your first holiday let

Buying a holiday let is different to a standard homeowner mortgage or a buy-to-let mortgage. Holiday let mortgages require deposits of around 25%. They are perceived as riskier to the lender, as they can only lend based on projected income and have no guarantee your let will be tenanted enough for you to repay your loan. This can lead to loans being rejected or being offered at subpar rates. You’ll be assessed on your credit history, other property investments, relevant business experience and business plan. 

Your business structure may also impact your application, with limited businesses treated differently from sole traders. As a holiday lettor you’ll be treated like a business, so you need to decide which type of business you’d like to run before you consider purchasing your first property 

To mitigate the chances of being rejected or receiving a poor offer, work with Rangewell. We’ll help you prepare an application and choose lenders that value the holiday let market and can support your goals. 

Furnishing your let

To be classed as a FHL and qualify for the beneficial tax breaks associated with it, you’ll need to offer adequate furnishings and equipment. However, some holiday let owners go far beyond ‘adequate’ to corner the market and offer luxurious furnishings or facilities such as hot tubs and home cinemas. 

Once you’re a business owner, you can apply for asset finance. This sees a lender issue finance secured against the value of the asset itself – so may be useful for specific costly items such as hot tubs, home spas etc. If you need help funding the outfitting of your property, we can help you secure asset finance that works for holiday let owners.

Running a holiday let

Running your own holiday let is a big part of the journey, but some owners choose to sidestep the day-to-day running of their let and outsource it to a property management company. If you choose to do this, you’ll simplify lots of tasks associated with ownership but will obviously reduce your profits. 

If you choose to run the let yourself, you’ll need a process for dealing with:

• Property maintenance and repair: when your property is damaged or encounters general wear and tear, how will you address that whilst ensuring you still generate profit? 
• Cleaning: at a minimum, you should be deep cleaning your holiday let between each guest booking. If you’re not confident you can clean to a standard good enough to attract positive reviews from guests, you should outsource to a cleaning service.
• Marketing: actively listing your site through tools such as Airbnb requires time and money as you’ll need to create the listing, manage availability and also commission high quality photographs of the property meant to attract guests. You may also want to explore further marketing techniques such as paid advertising, SEO and more in order to remain competitive. 
• Management: you can either invest your personal time or outsource a property manager to take charge of managing bookings, communicating with guests, resolving disputes etc. The more active a role you take, the less likely you are to have high overheads - but the less time you’ll have to invest elsewhere. 

There are, of course, more considerations you’ll need to take into account such as updating furniture or interior decor every few years, whether you’re going to offer a catering service in the property, whether you’ll need to hire additional staff etc. All of these come down to doing the right research and putting together a business plan that positions you ahead of your competitors. 

Start your holiday let business with our help

Ultimately, these are all just the very beginning steps you need to take to run a successful holiday let. Securing the right finance agreement gives you the support you need to buy, grow or upgrade your holiday properties. Here at Rangewell, we’ll help you make your goals a reality by negotiating on your behalf and securing holiday let finance from the UK’s most supportive lenders.