Buy To Let for AirBnB

fiisch

TLDR (To Long Didn't Read)
Thinking of taking the plunge and buying a Buy-To-Let Flat through a limited company in central Milton Keynes and renting out via AirBnB.  
Parents had huge success (at my suggestion thanks very much ) renting out top floor of their town house for a few years until Covid hit, and wondering if this would make a handy cottage business for my wife to help boost our income to cover a shortfall in earnings over the next few years.
Does anyone own any properties and rent out via AirBnB?
How to mortgages compare?  Is a holiday-let style mortgage required?  What LTV was needed?
Is this a terrible idea?

Background:
I am expecting a significant drop in household monthly income in the next few months, and considering best use of savings to carry us over the hump.

Current position:
- Age 34, work as IT contractor, but given current market conditions (lack of positions; IR35 legislation changes) and future career progression, considering a move back into permanent work;
- Will mean monthly income drop from circa £5k to potentially as low as £3k;
- Wife aged 32, two child (3 & 8 weeks old), so wife is receiving Maternity Allowance for next 8 months;
- Wife's job, where we live and personal circumstances mean realistically it is not economically viable for her to return to work until youngest is 3 years old;
- £12k in Premium Bonds; £8.5k invested in S&S ISA VLS100; circa £30-50k to withdraw from company if I go permanent (reserve fund to cover time between contracts).

 Problem:
- Fairly large monthly expenditure - moved into "forever" home last year, valued at £600k, on New Buy scheme (i.e.: 20% on equity share agreement, to be repaid in 5 years based on then price of the house) - minimum monthly outgoings "cut-to-the-bone" of about £3.5k;
- When/If I go permanent, will have about £500-£1k shortfall to make up per month.

Options:
1.  (Discounted) Further reduce expenditure - not an option.  Have already cut hire purchase agreements etc. - vast majority of monthly expenditure is mortgage payments (£1425, although currently overpay £1600);

2.  Use savings to cover shortfall - 36 months or thereabouts, so given unexpected costs, would leave us after 3 years with absolutely nil savings;

3.  AirBnB BTL.  Purchase via ltd company in nearby Milton Keynes for circa £160-£180k, nightly rental for around £80/night.  Circa £1464 net income assuming 61% occupant rate (average), after costs, circa £800-900 per month profit (rough, back-of-a-fag-packet calculations).


Is it worth rolling the dice on Option 3?  Given current climate, I would wait until at least end of this year to see effect on Property Market (I'm banking on missing the stamp holiday).  

NeilCr

First of all make sure you have been through all the hoops and that the flat can be used as an AirBnB

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

https://www.forsters.co.uk/news/blog/case-update-airbnb-lettings-finally-put-bed

There are other examples. We had a flat on our estate that was being used as an AirBnB. We had numerous complaints from neighbours (noise, strangers wandering the block who had the access codes, people ringing bells as they didn't know how to get in the car park etc etc). Turned out the lease prohibited AirBnB. The letting has now stopped

letsbetfair

Can you really not cut outgoings any further? £2k expenditure on top of mortgage suggests this might be worth looking at more closely. Or any possibility of bringing a bit extra in through the type of things in the Boost your Income section of this site?
It sounds like things are tight - do you have enough spare cash to deal with things going wrong if you take option 3? It's a high risk time to into Airbnb this year!

Explorer87

Would Airbnb actually make any money? 

I’ve used them a lot on my travels but with nothing going on I’m staying home or camping where I can.

Surely the buy to let could go to long term tenants?

saajan_12

fiisch said:

3.  AirBnB BTL.  Purchase via ltd company in nearby Milton Keynes for circa £160-£180k, nightly rental for around £80/night.  Circa £1464 net income assuming 61% occupant rate (average), after costs, circa £800-900 per month profit (rough, back-of-a-fag-packet calculations).

Based on those figures it sounds great but i think some of your inputs / assumptions look ambitious. 61% occupancy means 4 nights a week, every week. Even if you average out some peak times against other off peak, I'd expect you'd only get mid week bookings which you'd need to exceed the 4 nights, during school holidays and the height of summer.. say 4 weeks in summer, 2 weeks over xmas, 2 weeks over easter, 3 weeks of half terms = 11 weeks @ 7 days / week. I'd write ~22 weeks between October - March as zero - low occupancy (yes people do still visit the area, but you're up against hotels which are easier to google) and you need people to actually choose your place. For the remaining 19 weeks excluding the peak holiday times, I think you'd do well to get more than a 3 day weekend break consistently. All in, you have 
- peak: 11 weeks @ 7 days / week = 77 days
- medium: 19 weeks @ 4 days / week = 76 days
- off peak: 22 weeks @ 0 days / week = 0 days
All in, I'd call that 153 / 365 = 42% occupancy in normal times. Then add in COVID after effects, with people more reluctant to travel, you could be looking at ~30% occupancy for the next year. 

In terms of costs, you don't say what you're including, but remember some will be standing costs whether or not you have a guest. Eg. mortage interest, council tax, insurance, external repairs, advertising costs / AirBnB service fees, some cleaning costs if you have to keep someone on staff available. 

numbercruncher8

Projections seem heavily optimistic, where did you get them from?

Here is something in MK that probably fits the price range and rental value.
The forward bookings only go forward around 3 months. Just 1 day has a forward booking in all that time. I pretty much doubt they are getting 60% occupancy, I don't think some flats in London get that. In fact some sites put it at much less.

As previous poster pointed out, if you get unlucky with who you rent to, you could find people complaining and the listing blocked.