Holiday rentals in general is one niche within the investment property market that does not get a lot of media attention from an investment point of view. This survey is useful therefore in raising awareness if nothing else, although given that it is generated by a holiday rentals agency, we have to be a little cautious with the results.
For example, the survey does not measure actual profitability but assumed profitability based on twenty (20) weeks rental per year. Twenty weeks is not an easy target to hit, particularly with a new holiday rental. Consider for example that school holidays account for 13 weeks a year only and some of those could be poor times to go away on holiday in Britain due to weather conditions for example. For this reason, marketing, presentation and reputation will be big drivers of the booking rates...not forgetting actual location obviously. Location within national parks is one way to improve demand but as another recent survey highlighted, this comes at a premium on the purchase price also.
Equally, capital growth is a cyclical thing, as we see in the wider housing market, where certain regions (predominantly London and the south-east) have motored ahead of the rest of the UK in recent times. The rest of the UK will have their day at some stage too and so this aspect of the measure could produce a swing in the overall results over time.
I note that there is a 30% agent fee assumed and as long as this covers all agent commission & marketing fees, cleaning and laundry then that's fair but if not that will eat into the returns also. New mediums to market properties are opening up, such as Airbnb for example with a modest 3% commission, so there are opportunities perhaps to supplement the activities of the prime agent...or even replace them to some extent by using them. However, in order to self-manage, owners would need good local contacts (cleaners, laundry, maintenance, etc.), especially if they are not in the same location themselves.
Another aspect of this market is financing - if we want to use leverage in our investment...and we no doubt would to maximise our returns on cash invested (ROI)...then a mortgage is essential. However, there are limited options when it comes to lenders offering holiday rental loans and the risks of using either a residential or a standard buy-to-let could be great from both a lender and insurance point of view.
I have often pondered over owning a holiday rental myself, of course, one part of the appeal is the potential for personal usage but that could be counter-productive from an investment perspective. I have a holiday rental in sunnier climes and while this year, I will achieve the magical 20 weeks rental target, most of these are in low season and at a micro-rental compared to the 'sunk costs' of owning the property each month. In other words, it is not an easy, guaranteed win and so careful thought and planning is required for anyone entering this part of the market.
Could it be a useful addition to a portfolio? Yes, I believe it could, as it would provide additional diversification beyond standard buy-to-lets for example. The danger of course is losing focus, as getting good at holiday rentals is a very different skill-set to getting good at single lets or multi-lets for example.
The research is welcomed and interesting but it requires more in-depth research before we all pile into the Horsham estate agents and grab ourselves a chocolate-box holiday cottage...
Source & credits: Mail Online