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Profit from the staycatcion boom: How to let out a holiday home

Staycations are set to be a popular holiday option once again this summer, as foreign travel still looks uncertain despite the vaccine roll-out.

While going abroad seems ever more unlikely, holidaymakers are increasingly confident about being able to a UK break. 

Sykes Holiday Cottages, which lets properties on behalf of their owners, reported an 188 per cent increase in bookings for July and August over the past week compared to the start of January.

The company also saw a 114 per cent uplift in summer bookings compared with the same time last year.

As thousands of people look to explore Britain this summer, it could be a good time for those with a second home to turn their property into a holiday let – or for those with a substantial sum of money to invest in a holiday home. 

If you have the money to invest in a holiday let cottage, it could provide a substantial income

Sykes said new owner enquiries were up 80 per cent when UK travel resumed last summer, as property investors looked to take advantage of the rise in staycations -and there are already signs of new investors starting to prepare for the year ahead.

Whether it be your sole income, a second job or simply done for the enjoyment, the rewards of running a holiday cottage can be considerable.

For those who are considering investing in a second home and looking to learn about the market and understand how to maximise returns, This is Money – with the help of Bev Dumbleton, boss at Sykes Holiday Cottages – has compiled the following top tips.

1. Calculate any costs

Before you choose to invest, start by assessing your financial situation. This will help you determine how much money you have to kick-start your new project.

If you already have a property, is it going to need some work done to it before you can let it out? Think in realistic terms about how much this will cost you, on top of what you’ve paid for it.

You will also need to factor in costs like bills, cleaning and changeovers, maintenance, repairs and any mortgage repayments. 

Depending on where you buy, you could get a reduction in council tax as many local authorities offer a 10 per cent discount on second homes. 

Once you’ve calculated your costs, take them out of your revenue to ensure you understand what your profits will be both in the short and long term.

Seeking expert advice from a letting agent at this stage will help you estimate costs properly and plan your finances.

If you are purchasing a second home to rent out, there will be considerable costs involved including the deposit on the home, the mortgage, any redecoration costs plus stamp duty and taxes – which you can find out more about below. 

Those getting a second mortgage for a holiday let will have to consider a dedicated holiday home mortgage and will also be asked to pay more upfront, usually around a 25 per cent deposit. 

Lenders will likely look for returns that cover at least 125 per cent of the mortgage interest payments, too. It is important to consider all these costs before committing. 

The Peak District is one of the most popular places for homeowners to have a holiday let

The Peak District is one of the most popular places for homeowners to have a holiday let

2. Think about your location

If you’re looking to buy a second home, it’s important to consider where your holiday let will be based. 

The location of your property is the one factor that has the greatest impact on the income you can generate. 

The Peak District takes the top spot as the highest-earning region for holiday lettings in the UK, with a four-bed cottage generating £27,000 per year. This is compared to the UK average of £21,000 a year.

If your property is close to local attractions or amenities, such as beaches or historical sights, this will likely draw visitors to book a stay and pay more. 

For example, Sykes data shows that coastal properties earn on average seven per cent more. 

It’s also important to think about how accessible your holiday home is, including how much parking is available, and whether there are good transport links in the area.

Location, location, staycation 

These are the top five most popular regions for staycations in the UK, based on how much Sykes holiday let owners earned on average in 2019.  

1. Peak District: A two-bedroom home in the Peak District earned owners an average of £14,000 a year, whilst a four-bedroom brought in £27,000.  

2. Cumbria: Meanwhile, in Cumbria, a two-bedroom holiday let could commanded £14,000 a year, whilst a four bed saw an average intake of £26,000. 

3. Heart of England (Herefordshire, Shropshire, Worcestershire): A two-bedroom home in the Heart of England earned owners £13,000 on average, whilst a four-bedroom earned a homeowner £25,000. 

4. Yorkshire Dales: In the Yorkshire Dales a two-bedroom holiday let made £12,000 a year, while a four bed home had an average intake of £26,000.

5. Cotswolds: A very popular staycation location, homes in the Cotswolds earned an average of £14,000 for a two-bed home whilst a four-bedroom property commanded £23,000.

3. Money well spent

Giving some thought to who your target visitors will be will help you furnish and add appropriate finishing details to your holiday let.

You want it to feel homely, but also to be as practical as possible. 

If you’re appealing to large families, make sure there are a range of bed sizes and enough chairs around the dinner table, and keep it cosy if you want to attract couples for a romantic getaway.

Spending a bit of extra money on high-quality, durable furniture will save you money in the long run, as this has to withstand use by many different guests. 

It is also worth thinking about how easy your furnishings are to clean, as you will want to make this job as easy as possible – especially if you will be doing it yourself. 

Leather sofas, for example, are much easier to maintain than fabric.

Ensuring your guests have a great stay will encourage good reviews, recommendations and repeat customers – all of which will boost your profits.

4. Set your sights on year-round bookings

Making sure your property has year-round appeal will help to boost your income, and there are easy ways to do this. 

Whilst a coastal home will net you more in summer, it is less likely holidaymakers will be keen to visit in the winter months when they cannot make the most of their surroundings. 

You can also maximise revenue by allowing guests to book shorter breaks.

This is especially true for over autumn and winter, when people want to escape for long weekends. Owners welcoming shorter breaks can earn 30 per cent more each year by doing so, according to Sykes. 

There are also many property features that drive off-peak bookings, including hot tubs, open fires and wood burners. Holiday lets with a hot tub earn 50 per cent more, on average, than those that do not.

If you have any features that will attract bookings year-round, it’s important to highlight them in photographs and descriptions of your property.

The Cotswolds is another popular area of the country to take a staycation all year round

The Cotswolds is another popular area of the country to take a staycation all year round

5. Marketing your property

If you don’t fancy doing the leg work yourself when it comes to lettings, you can contact a letting agency for advice.

However, it can be useful to approach them from the outset to make use of their support from the very beginning, not just when you’re ready to start letting.

They will be able to advise on everything from the features to prioritise and how to price your holiday let, through to taking the perfect images and marketing the property online.

It is possible to list your property online yourself, but one of the advantages of using an agency is that they will take the hassle out of advertising your property across multiple websites.

You should also consider using the power of social media. This will allow guests to leave you a review and any photos of their stay that they wish to share. 

6. Stamp duty and other costs

Those buying a holiday home will generally find stamp duty is more expensive than on their main property.    

If you’re buying an additional property, such as a second home or certain buy-to-let properties, you will have to pay an extra three per cent in stamp duty on top of the normal rate for each price band. 

However, the current stamp duty holiday means that no stamp duty needs to be paid on the portion of a property below £500,000 up until 31 March 2021. 

This means that people buying second homes will just pay the three per cent surcharge on anything below that amount. 

You must have completed your property purchase by 31 March 2021 to qualify for the new revised rates on stamp duty. This is a short time frame so the costs will be even higher from April onwards.  

After that, second home buyers will need to pay a total of three per cent stamp duty on anything below £125,000; five per cent on homes between £125,001 and £250,000; eight per cent on properties between £250,001 and £925,000; 13.5 per cent on homes between £925,001 and £1.5million, and 15 per cent stamp duty extra cost. 

There are also special tax rules for rental income from properties that qualify as furnished holiday lettings.

If you let properties that qualify as FHLs you can claim capital gains tax reliefs for traders, for example, business asset rollover relief, entrepreneurs’ relief, relief for gifts of business assets and relief for loans to traders. 

You are also entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures.  

To benefit from these rules, you need to work out the profit or loss from your FHLs separately from any other rental business.

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