Furnished Holiday Let for extra income?

GinnyBee

Hi all,
This is my first time here, I wanted some advice and experiences regarding FHL and potential to make some income from it. I haven't yet spent a lot of time researching all the nitty gritty details, so do bear with me if it seems like certain things should be obvious.

Background: My husband and I work at his family farm that his parents own, and will eventually pass down to him. We love the farm and want to keep it going, but the earnings potential is limited. It doesn't bring in comfortable salaries, not yet anyway, but requires full time commitment. As a 'side income' I have been thinking about getting a holiday let, because of the time required by the farm we are unable to work second jobs so I've been trying to think of something that would earn us money without requiring regular hours. We want to start a family, so foreign holidays will be complicated for the foreseeable future so a domestic holiday cottage would come in useful anyway, and if it brings in a bit of extra income then even better. It would at the very least need to pay for itself and cover mortgage payments, so if the extra income isn't there immediately but takes a few years to start coming in, that's still ok.

We own our house outright, mortgage free. I'm guessing the best way to FHL ownership would be to borrow against the house for the deposit and then take out a specific holiday let mortgage? We have some savings but not 30% that holiday property mortgages tend to require.

Any words of wisdom for why this is a terrible idea? Great idea? Something in between?

moneysavinghero

Is the farm in a scenic area? How about a camping field. You could even add some glamping later on if the site seems to be popular. Then you can use the income from that to book as many weeks away as you want whether you want rather than being tied down to one location.

GinnyBee

moneysavinghero said:

Is the farm in a scenic area? How about a camping field. You could even add some glamping later on if the site seems to be popular. Then you can use the income from that to book as many weeks away as you want whether you want rather than being tied down to one location.

We discussed this at one point, but then after visiting another glamping site and chatting to the lady who runs it we decided against. Mainly because customers aren't always easy, and we didn't want people knocking on our door at 9pm on a Saturday because they can't work out how to use the heater or whatever silly issue. Basically, running a camping accommodation requires more availability on our part than we wanted to get into, particularly when it would be on our property. Parking here is also an issue - the only site that would fit a glamping pod or two is at the end of the field with no easy access and the possibility of being woken up by a tractor.

martindow

Is there scope to convert a building on the farm to be holiday accommodation?  In some areas of the country a lot of farmers have replaced older buildings with modern barns and then used the older building to  rent out or for family living space.  On others they have managed to build a new house on the farm for parents to retire to while the younger members of the family carry on farming. 

You need to have a talk to your local planning officers or councillors to see what may be possible.

GinnyBee

martindow said:

Is there scope to convert a building on the farm to be holiday accommodation?  In some areas of the country a lot of farmers have replaced older buildings with modern barns and then used the older building to  rent out or for family living space.  On others they have managed to build a new house on the farm for parents to retire to while the younger members of the family carry on farming. 

You need to have a talk to your local planning officers or councillors to see what may be possible.

We don't have any more buildings that aren't in use. The house we now live in was converted from two 1-bed flats and a garage, one of the flats used to be a holiday let and the other was a long term let, but neither exist anymore. And there's no space for an extra building either, the farm is actually tiny.

And having holiday accommodation on site would defeat the purpose of having a holiday cottage that we could also use for our own holidays.

AdrianC

GinnyBee said:

moneysavinghero said:

Is the farm in a scenic area? How about a camping field. You could even add some glamping later on if the site seems to be popular. Then you can use the income from that to book as many weeks away as you want whether you want rather than being tied down to one location.

We discussed this at one point, but then after visiting another glamping site and chatting to the lady who runs it we decided against. Mainly because customers aren't always easy, and we didn't want people knocking on our door at 9pm on a Saturday because they can't work out how to use the heater or whatever silly issue. Basically, running a camping accommodation requires more availability on our part than we wanted to get into.

You're going to have that with holiday lets, too... If anything, more "entitlement", because campers should at least expect to be more self-reliant.

YellowCarBlueCar

Hi,
We've run an FHL for a about 12 years now, and for us it's not nearly as lucrative as we'd thought.  If you're looking to cover running costs and mortgage interest, then so long as you but the right property in the right part of the country (i.e. with a long 'season'), then you should be OK.  In terms of income/return on investment we'd probably have done better with an investment fund, but if you factor in the capital appreciation we've done better, but it's a lot more work.  And you're basically speculating on the property market.

We borrowed the full cost against our main residence (mortgage paid off before we bought) as this gave us a better rate, and as far as HMRC are concerned, it's the reason that the funds are borrowed (i.e. to fund the business) not the property that the loan is secured against which matters.

Don't underestimate how much work is involved.  Think about how much work is needed on your own house in a year, then increase that (because you look after your home, not all of your guests will), and then consider that you don't have the luxury of doing work when it suits, but when you have vacancies between guests.
Finding a good reliable cleaner / housekeeper is not easy, and professional cleaning companies are not always what you'd hope for either.  In COVID times this matters more than ever.

Personal use:
We use ours because we love it.  But we go knowing it's not going to be a 'proper' holiday, as we'll find jobs that need doing.
Tax-wise, it's actually cheaper to stay somewhere else.  You'll lose the income that you would have taken for the period that you go (if you don't restrict yourself to un-booked weeks), and you'll also have to pay for the proportion of the costs that are incurred while you stay (so say you use if for 4 weeks in a year, then 28/365 of your costs can't be offset against income).

Tax-wise, you need to let at least 115 nights, and be available for at least 260 night in a year to qualify as a FHL.  Under current tax rules you also qualify for entrepreneur's relief on GCT, and have rollover relief if you sell one property to buy another.

The biggest change in the last 12 years, and something that sometimes makes me want to quit, is the advertising side.  You pretty-much have to list with one of the big listings sites, and these are now quite intrusive.  VRBO used to be Owners Direct, and in the old days was a platform to put guests in touch with owners.  Now VRBO will only put the guest in touch with the owner after they have taken payment (including their commission - on top of the £300 odd annual listing fee that we pay), and sometimes mess up the process leaving the owner to sort out the mess.

So go for it if your primary goal is to get your own house in an area you love, but if you're doing it primarily for the money then my experience is that there must be easier ways!

GinnyBee

Thanks @YellowCarBlueCar that's really helpful.
I'm assuming you handle managing the property yourselves or do you have some 'cottage holiday' company managing it for you? My in-laws have a holiday cottage in Cornwall that is fully managed (cleaning, upkeep, bookings, check-ins, maintenance, etc.) by the hotel it's attached to, and all of those costs are of course deducted before any profit is transferred over to the owners. They make a decent amount from it without having to do anything, but from a few Google searches it seems like that type of opportunity is very much contained to that one company, I haven't found any others. Cornwall is a bit further than what we'd be looking at though, and their cottages rarely come in the market. That would be ideal and why I originally started thinking about this. I wouldn't want the hassle of managing the property ourselves, especially if it's 2+ hours drive away.

YellowCarBlueCar

Hi GinnyBee,
Yes, we manage it ourselves.  We did speak to one of the big agencies at the outset (part of the Hoseasons group), but found them pretty controlling too.  They set the rates, and want exclusive control of bookings, which is fair enough if they have to fund the advertising, but this extended to only allowing 2 'owner weeks' per year - i.e. for 50 weeks of the year it's not your home...
In our first year we exceeded the average occupancy for a property in our area on the same rates, so we kept ploughing our own path.

To be honest, managing the bookings is the easy bit, and can be done from anywhere.  Managing the property is the challenge...

GinnyBee

The deal my in-laws have is that they are allowed to book it whenever they like as long as there are no other bookings for that time, so requires a fair bit of advance planning to book it for themselves, but no restrictions for how much they can use it. And the hotel manages the entirety of it, down to the decor etc. which makes it feel more like a holiday property than a second home, but for the low maintenance of it that's totally worth it. It just exists and makes money, and if there are any issues the hotel sort it out. I think they also have a 'minimum earnings' in the contract because they were one of the first people to sign up when the development was being planned, meaning they still make a small profit even if they have no bookings. It's a sweet deal, but I'm starting to think I'm very very unlikely to find anything like it for myself.

RAS

Asking a farm to provide income for two families is very challenging. I'd suggest one of you at least needs off-farm income, if nothing else to smooth the cash flow. And given there is already one holiday cottage in the family, putting all your eggs in one basket seems unwise.