Should I buy a flat to use for Airbnb?

uk_american

Background: I am 44 years old, I own a flat that I live in, no mortgage. I own a buy to let house which is starting year 3 of a 5 year lease agreement, £50k left on that mortgage, house is worth £250-260k. The rent pays the mortgage payment plus £310 extra per month. This year's 10% overpayment for December is set aside in an account so will be at 44k after December.

I was offered a settlement agreement from my company after a merger in Feb 2019. It was very generous offer so I took the opportunity to leave the stressful world of IT and retrained to teach, something I've always wanted to do.

My subject is specialised, think 'part-time' rather than 9-5. My work is up and down, I try to round it out with private students. I don't have the annual income of £25k to qualify for a traditional high street mortgage.

I've been contributing heavily into my pension for the past 20+ years so I'm set on that front.

Question: Currently I have £100k in ISAs, I could perhaps push it to £120k available for a deposit and still have room to cover my personal expenses.

A flat in my building has come on to the market for £200. £200 is a fair price based on the past listings that have sold at £195-210.

I know the building and its charges. The management fees, ground rent and water/sewage is £1600/year. I pay £125 annually to ensure my buy to let house. Most Airbnbs near me offer television and netflix so an additional cost. Also budgeting up to 2k for furnishings and gas safety checks. I'm not forgetting stamp duty either.

Airbnbs are not plentiful in my area but there is a need. In the past I have let out my personal flat on a short-term basis on Airbnb and stayed with my partner (our houses and finances are separate and he often works abroad so his house is empty).

One bed flats in my area currently go for £90-100/night on Airbnb. This rate is consistent for what I charged previously. At the time I had multiple requests for longer stays, mostly business/corporate for three months but I limited my offering to one month max.

I would expect to do all of the cleaning, laundry etc. between tenants. As I'm in the building and working limited hours I have a lot of flexibility as to when I can check in/out. The flat on offer is in very good condition, no additional work would be needed (although my partner and I are quite good at the basics, on my buy to let we used a qualified person for the electrics, gas and carpets but handled the basics like painting, changing locks, deep cleaning).

I know I have the challenge of not having a salary to get a mortgage.
I know the Airbnb model isn't quite the norm either. One bed flats in this area normally go for £800/month.
My buy to let is basically my tax free allowance, so anything that I earn teaching or otherwise is at the 20% rate.

What else am I missing, appreciating any thoughts: good, bad or ugly please.

G_M

uk_american wrote: »

.... I own a flat that I live in, no mortgage. I own a buy to let house which is starting year 3 of a 5 year lease agreement,

Hope that was Executed as a Deed......?


https://www.landlordlawblog.co.uk/2012/02/23/five-fixed-term-tenancy-periods-and-what-they-mean/

uk_american

G_M wrote: »

Hope that was Executed as a Deed......?

Thanks! Yes, it was.



I rent it to my local Council, they use it for emergency accommodation to house people who are eligible for Council housing but none is available. Their legal team prepared the paperwork as a deed, I did the witnessed signatures, etc.

NeilCr

Does the lease of the flat allow AirBnb. I am a director of an estate and our leases bar that sort of letting.

It's not particularly popular with neighbours either - especially if there are a lot of owners resident

Some background and information

https://www.bradysolicitors.com/brady-blog/the-end-of-airbnb-lettings-for-leasehold-properties/

https://www.lease-advice.org/article/airbnb-leaseholders-be-aware-4/

GDB2222

You have enough cash/ISA available to manage a 50-60% deposit. You need to borrow the rest.

You'd think that a buy to let mortgage would do the trick, but most B2L lenders forbid AirBNB. I suggest you research whether any lenders will lend for the purpose. GIYF here, and/or a mortgage broker.

There's some info here:
https://www.telegraph.co.uk/personal-banking/mortgages/shock-threat-airbnb-hosts-mortgage-lenders-say-breach-contract/

At say £90 a night, you'll be receiving around 8% pa of the flat value with a 50% occupancy rate. That's before expenses. I don't know local rents, but I expect that's significantly better, and of course you'd hope for a higher occupancy rate.

Will you need to pay business rates on the flat? You may need change of use consent from the council, as this is going from residential to holiday letting?

uk_american

NeilCr wrote: »

Does the lease of the flat allow AirBnb. I am a director of an estate and our leases bar that sort of letting.

Thank you, I will dig out my lease to look further. It was a new build in 2006 and I recall it does require written permission to let it out but I don't recall any exclusions of airbnb etc.

Our building is around 75% owner occupied, including me. As I've had to put up with rogue tenants I'd be particularly cautious in this area. My balcony overlooks this flat's terrace so I would mention that in the listing.

The flats are well laid out, this flat has no shared walls with its neighbours, only a communal hallway with one other flat.

Thank you for the links, reading up some more.

PasturesNew

Don't assume that local AirBNB advertisers are ever getting any bookings at the prices you see. There are fees to pay too.

An advert might exist 365 days/year, but they might have other income streams/ways of booking it out, or use it for family/friends and the AirBNB is a "handy few extra bob when the occasional booking comes in".

NeilCr

It won't mention AirBnB specifically. It will likely be one, two or all of the three covenants mentioned in the Brady link. In addition, you might get caught on running a business. Our blocks were built around the same time as yours and have the covenants

Neighbours get twitchy because of seeing lots of different people around who have access to their building. It's not necessarily rogue tenants

uk_american

GDB2222 wrote: »

You'd think that a buy to let mortgage would do the trick, but most B2L lenders forbid AirBNB. I suggest you research whether any lenders will lend for the purpose. GIYF here, and/or a mortgage broker.

There's some info here:
https://www.telegraph.co.uk/personal-banking/mortgages/shock-threat-airbnb-hosts-mortgage-lenders-say-breach-contract/

Thank you, reading up on your links, the current buy to let mortgage is from HSBC. :-/

uk_american

PasturesNew wrote: »

Don't assume that local AirBNB advertisers are ever getting any bookings at the prices you see. There are fees to pay too.

An advert might exist 365 days/year, but they might have other income streams/ways of booking it out, or use it for family/friends and the AirBNB is a "handy few extra bob when the occasional booking comes in".

Thank you, agreed! I had 10+ listings on my own place where they paid £95-100/night. £90-100 is a safe bet in this area. It's crazy money but a hotel here is £150 so I see where people are coming from.

Slithery

uk_american wrote: »

Thank you, reading up on your links, the current buy to let mortgage is from HSBC. :-/

Are you allowed to create a commercial tenancy with this mortgage? Most of them don't allow it.