Buy to let holiday home

dycunn

Please could you give me advice on buying a holiday home in Isle of Skye. The house price is £170,000.00 and we will put down £70,000.00. It is a popular area and monthly rent is between £200 low season and £400.00 to £450.00 high season Got that wrong about the rent. Yes it is per week. Not to sure were to start with advice?

We have decided on Skye because we have spent there 18 years or more on family holidays.

Also on behalf of my parents does anyone know much about equity release?

dunstonh

a 100k mortgage will cost you around £600pm and you will get £200-£400pm rent. Do mean per week on the lets? If not, then it would seem a very poor investment.

BobProperty

Eh? Did you mean weekly rent? £400 a month high season and £200 low plus voids isn't a lot of money. 3 months high + 6 months low = £2400 on a value of £170,000 equals a return of 1.4%. If you put your £70k in the bank you'd get over £3k a year in interest.
Now even if you meant weekly, do the same calculation. That by my reckoning only gives about a 6% return. It's up to you if you think that's good enough but I don't.
If you do go ahead with it, as a holiday let you will need someone local to "turn it round" every week. (Given that they are likely to be Scots they will likely want paying ) . Holiday lets count as a business for tax purposes so there are lots of things you need to do regarding records, receipts etc. and you might want to get the advice of an accountant for this. There are also tax benefits from doing this, again, an accountant will help.

Ian_W

Strictly in terms of an investment Bob and dh have said it all. However, if you intend to take all or most of your holidays in the area for at least the next 5-10yrs then it may well be a reasonable risk to buy a holiday home, that you subsidise and maybe even make a profit by letting out, when you’re not using it.

Research the holiday letting market on Skye, talk to some local agents about potential, look at availability on owners/agents websites to try to gauge average occupancy. Consider how and where you could market the property. One large national agency suggests 28 weeks is the average occupancy for UK holiday lets but this must vary tremendously so work on conservative figures for income and inflated ones for outgoings. Your mortgage [at 5.5%] on a £100K will be £5,500 pa interest only and on top of that you’ll have Council Tax [90% if Scotland is the same as England], utilities, cleaning/caretaking, gardening, insurance, repairs, agents fees etc. Based on your rental figures [from experience they must be weekly] if you let 5 weeks low season, 5 weeks peak season and 10 weeks mid-season you should gross £6,000 - can you afford the running costs if they’re above that figure? If not it’s a NO, NO, IMO.

The easiest way to borrow the £100K you need is to re-mortgage if you have the equity in your home. If you don’t then you’ll need to see a broker as a normal residential mortgage and BTL isn’t usually available on holiday homes.

In respect of tax the situation, as I understand it [get prof advice to confirm] it is better than on a normal BTL as a furnished holiday let [needs to be available to let 140days per year and actually let for 70 days] is considered a business whereas a BTL is an investment. Two main benefits are that any loss can be set against other taxable income - so you get tax relief against your day job - and any capital gain when you sell is reduced by business asset taper relief which, after 2 years, allows you relief on 75% of any gain.

I’ve recently done some costings for a holiday home we hope to purchase in another part of the UK [if our vendor ever sorts out the freehold - but that’s another story!] and we could be subsidising the costs by about £2K pa. However as we already pay that sort of money to hire cottages and we would get tax relief on the loss - it’s less than we‘re paying ATM. Additionally in our case, we’re fairly close to retirement and may decide to make it our main home then.

If you have the means to afford it, who knows, it might turn out to be a very good move if property prices do increase over the longer term but just as an investment I wouldn‘t bother. BoL and HTH.

mlingram

I have 2 Holiday homes in West Wales and after 2 years of running them as a Holiday Let decided to simply rent them long-term as the overhead of running a Holiday Let and the time where the property remains empty simply didnt stack-up.

If you bear in mind the agents fees for booking each Holiday Let, costs for cleaning in-between lets and gardening costs (grass-cutting etc...) it soon adds up.

Now, my rental covers the mortgage and i'm looking at this as a long-term
investment whereby the increase in property value (so far) more than beats any Savings return I would get if I left cash in any High Interest account.

dunstonh

Now, my rental covers the mortgage and i'm looking at this as a long-term

But did you do this when property prices were lower?

the increase in property value (so far) more than beats any Savings return I would get if I left cash in any High Interest account.

You arent really comparing like for like here. Mortgaged buy to lets are high risk. Indeed, higher risk than most stockmarket funds and property hasnt performed as well as the stockmarket in the last 3 years. Any half decent sector allocated portfolio would have outperformed property over the medium to long term too.

If you are looking at growth potential for the future, with properties already requiring two incomes to buy and 40 year terms not uncommon now and people even borrowing on interest only basis, then that all indicates that there isnt a lot of scope for further increases beyond what people can afford with their income.