Whether you’ve branched out into buying a second home, have inherited a property or looking to expand your property portfolio, there’s often a tough choice to make between Renting or Holiday Letting. There’s so much to think about; with conflicting information about the correct route to chose, you’re probably looking for someone to help you navigate your way to property success.
Well no need to worry any longer, we’ve got this covered! This guide to Renting vs Holiday Lets will take you through the pros and cons of the different options, the things to have an extra think about and the ways we can help you in managing your property to get the most value from your investment! It’s time to help you get the lowdown on the long and short term property market, are you ready? Let’s jump in…
Purchasing
If you haven’t already purchased your property, there may be some areas to consider before signing on the dotted line to ensure you get the best deal, right from the start!
There have been a number of legislative changes around Buy-to-Let taxes in recent years, meaning that getting a second home on a Buy-to-Let mortgage, isn’t as cheap as it once was. With rises in stamp duty on second home, reduced mortgage interest relief and tougher lending conditions, getting a Buy-to-Let property may be financially unviable before you’ve even got your first tenant in!
Mortgages on Holiday Lets can end up bringing savings over a long period but are often trickier to come by. It all depends on how much of the year you want to let for – a second home or holiday let mortgage may end up being the best thing for you but these plans are often tougher for acceptance. Other benefits are there to be had – a great example is that furnishing a Holiday Let property and may bring potential tax relief due to it’s business-type status. Savings can also be made on the interest of your mortgage, utilities, furnishings and insurance.
When purchasing there is no out and out winner, it is all dependent on your situation and plans. Our advice; do your research and shop around for the best mortgage rates and advice. If you need a hand, our experts at Flamingo Short Lets are happy to advise on the best route for you!
| Rental | Holiday Let | |
| Pros | Greater Options and Availability of Buy-to-Let Mortgages | Potential Tax Relief Savings |
| Cons | High Tax Rates (i.e Stamp Duty) | Situation Dependent, Tougher Acceptance |
Maintenance
Whichever route you decide to pursue, there will be a responsibility on you as the owner to ensure the property is fully maintained, safe and up to standard for your occupants.
With a rented property, the maintenance needs may potentially be lower for a number of reasons. Firstly, your property becomes the tennents home and as such, will usually lead to a higher level of respect and cleanliness. Alongside this, the tenant is therefore likely to fix the ‘little things’ themselves (whether that’s good or bad depends on the tenant) not alerting you as often to those smaller tasks!
With a rental, you won’t be gifted with the opportunity to inspect the property as often and will have to abide by lettings laws for giving inspection notice. With rental properties, you are more heavily reliant on the tenant notifying you when something needs fixing and, dependent on their attitude to the work, may not notify you until it’s too late!
With a Holiday Let, you’re undoubtedly going to need to keep the property to a much higher standard and as such, the maintenance work will be higher. With such a high turnaround of less emotionally invested guests, there is the increased risk of misuse or damage although many lettings platforms allow you to rate/choose your guests, putting the responsibility back onto them!
With a high turnover of guests, it means the property has natural vacancy for you to inspect it and action any work that is required. Whilst a property owner never wants negative feedback, a short-term guest is far more likely to let you know when something is wrong with the property meaning greater visibility of issues that may occur.
| Rental | Holiday Let | |
| Pros | Lower Standard Expected, Greater Respect for Property, Higher Threshold to Issues | Regular Access, More Opportunity to Conduct Maintenance |
| Cons | Less Frequent Access, Less Visibility of Property Condition | Higher Standard Required, Less Respect for Property |
Time Investment
When investing your money into property there are considerations to make around the time you have available to put aside into the ongoing management. Both Renting and Holiday Letting will require some work, so let’s consider the time required by you, the property owner.
If you’re looking to take a backseat and have an investment which just ticks over, renting may be the option for you! Often when renting out a property, an occupant will be in for the long term creating their home; as such you can leave them too it! With most rental properties, it’s advised to schedule 6 monthly or so inspections to ensure things are ticking over nicely, with the occupant only contacting you if there is something amiss.
Given the high turnover of Holiday Lettings, there may be a greater management responsibility to keeping the venture moving. You will often need to be contactable for guests, regularly visit to inspect whilst handling queries and questions for prospective bookings. If you’re looking for a venture to tide you over through early retirement, a Holiday Let is a great income stream that can keep you busy and active! Running a Holiday Let is a full time job and will undoubtedly require some time investment!
Of course, when it comes to managing Holiday Lets, our team at Flamingo are experts in taking away the stresses of property management, giving property owners peace of mind alongside a steady return on investment – get in touch to find out more!
| Rental | Holiday Let | |
| Pros | Relaxed Approach, Less Management Requirements for Busy Schedules | More Management Requirements for Semi/Fully Retired |
| Cons | Less Hands On Interaction | High Demand of Time |
The Financials – Costs
Naturally with any investment, it’s key that you can balance the books to get a solid return on investment. The first big area to consider is the ongoing costs of your chosen path and what they mean to you!
Firstly, as we’ve covered above you’re going to incur costs for maintenance. With a Rental property, these costs are going to be less frequent with most costs incurred when a long term occupant leaves before a new one enters. This includes areas such as redecorating, upgrades and damage. With a Holiday Let, the same costs will be incurred but these costs may be spread out with frequent opportunities for work between guests.
The typical bills you associate with running a property may not apply for Rentals, as these costs will be passed onto the Occupant. Areas such as electricity, heating or water charges will most likely be covered by your tenant through their chosen suppliers. Unfortunately this is not the case for Holiday Lets, which is something you will have to consider when setting your pricing strategy, covered later in this article. Remember, you will need to turn the Holiday Let around covering utility costs such as Laundry, Heating and Electricity!
After initial setup, these costs may be covered under maintenance but when you first set out your property you may need to furnish it. With a Rental, it may be up to you whether you offer it furnished or not but a Holiday Let will definitely require some interior design! The quality of furnishings may directly impact your Holiday Let booking rates so the costs may creep up in this department with a furnished Rental having the potential to attract a higher asking price!
When getting occupants into your property, you’re going to need to advertise it to the market, incurring costs to get the best people in! With Rental properties, this cost will typically be one-off as long term occupants come and go but with a Holiday Let this cost will likely be an ongoing one which spikes in the run up to peak seasons.
Another huge area to consider for both options is commissions. Both Letting agents and Online Travel Agencies charge commissions to manage the sourcing of occupants, some charging at the point of an occupant being found, whilst others have ongoing membership or service costs. Many people manage to successfully fill their properties independently but if you opt for some assistance, remember to calculate the costs you’ll incur!
| Rental | Holiday Let | |
| Maintenance | One-Off, High Costs | Regular, Low Costs |
| Utilities | Passed onto Occupant | Covered by Landlord |
| Furnishing | Optional, Can Boost Income | Mandatory, High Quality Required |
| Advertising | One-Off, High Costs. | Regular, Low Costs. |
| Commissions | One-Off Placement, Up to One Month Rent | Variable Rate – 3% – 20%+ |
The Financials – Revenue (Pricing & Occupancy)
We’ve reached the real business end of our analysis of Renting vs Holiday Lets by taking a look at the potential incomes you can look to generate. We’re going to break this down into two key, interrelated areas: Pricing and Occupancy Rates. Let’s consider both in turn for our two property options:
Pricing
When it comes to Renting, you’re going to instill a fixed market price for your property. Tenants are going to be looking for long term, stable pricing structures and as such you’ll be limited by the pricing set out in your initial contract. Whilst this may seem like a negative in terms of capitalising on a short term opportunity, a long term rental contract gives you a more reliable income forecast and increased security in your investment.
The Holiday Lets market is one which experiences major peaks and throughs throughout the year, with big rewards on offer in the busiest season. Most Holiday Let locations will experience seasonal shifts in supply and demand and as such it is harder to predict a revenue forecast. Some properties can command up to 5x more for a per night price in their busy season, so as an owner, there are definitely rewards to be had. With your Holiday Lets, you’re also going to have to cover those utility costs we mentioned earlier on, so ensure your pricing matches that outlay. If you’re dependent on the income generated from a Holiday Let, the quiet season may be a tough time with prices falling due to the drop in demand.
Occupancy
With Renting you are likely to have a fixed tenant in place giving you further stability and assurances for your revenue forecast. Typically contracts for rental properties will be binding for the tenant, giving you peace of mind that if they decide to move on, you will still get the income expected. The negative with Rental properties when it comes to occupancy is that if you are in a low demand area, your property may be vacant for long period. Here is where you may have to bring in the services of a lettings agent to boost your properties marketing image, but be warned, they can often charge hefty commissions!
Getting your Holiday Let fully booked can often be a tricky task with a lot of competition from Online Travel Agencies and private listings alike. The nature of Holiday Lets means that short stays are often most popular over the weekend and holiday periods with weekday vacancies often struggling to get filled due to the drop in demand. But this is where we come in! Flamingo Short Lets are experts in marketing your Holiday Let to boost it’s exposure and maximise your bookings all year round. In fact, we’ve recent wrote a guide on this, why not check it out here?!
| Rental | Holiday Let | |
| Pros | Long Term Contract, Stable Income Forecast, | Maximising Demand Trends |
| Cons | Opportunity Cost of Seasonal Demand, Potentially High Turnaround Times | Off Season Drop in Bookings |
The Verdict – What Yields Can You Expect?
It’s a tough choice when taking on a property for investment, with the pros and cons of both Renting and Holiday Lets appealing to different types of buyers. With increased taxes being burdened on to Buy-to-Let properties, the potential Yield has definitely become greater with a Holiday Let but does require an increased time management investment as well as greater risks. But don’t just take out word for it, we’ve got the stats to back it up!
Statistics show the Rental market in London sees an average yield of 2-3%, which is fairly low given the risks involved. At Flamingo Short Lets, our London customers receive a 10-15% yield on average when listing their properties as Holiday Lets with us – we’re pretty proud of those fantastic results! But it’s not just London where we see the yields booming; outside of the capital we achieve an on average yield of 14-18% for properties which typically struggle to get even 8% on the Rental market.
Naturally here at Flamingo Short Lets, we believe that Holiday Letting is a fantastic way to maximise your investment when obtaining property. Our expert team have all the experience and knowledge to not only get your property into tip-top shape, but to professionally manage the Holiday Letting process – taking the stress away from you whilst ensuring a fantastic ROI.
Want to find out more? Get in touch with our team today, we’d love to have a chat to explore how Flamingo Short Lets can help you achieve your dream results from your next property!