Talk me out of this idea or not (buying a property for holiday rental)

[ProDave]

So we have a pot of money from the sale of the old house.  One idea we have had for some time, is spend some of it, on a property in a location we particularly like partly for our own use as a holiday home, and partly to let to paying customers as a holiday let when we are not using it.

 

The thing that is causing me concern is the amount of regulation there is in that market now thanks to those at Hollyrood.  You have to be registered and pay your fees to the local council to be able to let a property now even as a holiday let. There is a raft of paperwork you have to comply with, most of which involves you paying someone to provide a certificate to prove you are complying.  In other words from my POV money for old rope to pay someone to certify things that although I am capable of judging, I am not "qualified" to do.  Now I can just about stomach that insult as a business cost.

 

But what is troubling me, it at some point not very far in the future, there will be a requirement for all such properties to have an EPC C or better to get your licence.

 

And looking at the properties for sale in our chosen location, most have an EPC of E, F or G and strike me as needing a lot of work to get them to a C.  This is not intended to be a buy and renovate project and in any event the prices are not cheap enough to cover that.  It would appear most buyers at the moment are blissfully unaware of the rules heading this way, but one day they will and I feel certain such "poor" properties will drop in value when the reality of the work needed becomes clear.

 

At the moment there is one for sale with an EPC of D.  I am awaiting the home report and EPC from the agent though suspect they won't even read my email until next year.  My thinking being getting that to an EPC C should not be so challenging.

 

The other challenge if we do that is finding a local person that can manage the property for us, by that I mean the cleaning, laundry and handover to renters.  We would be 200 miles and a ferry ride away so would not want to be doing that weekly.

 

I know some on here run holiday rentals, and some I think do so remotely so interesting to hear how you do things. 

[JohnMo]

This what we found - We did it, sold them now.

 

Costs

You have to pay extra duties on purchase, as it classed as second home (Scotland). If you register as a business you may be able to get small business relief instead of council tax, which when we did was zero rated.  But if you don't register as business, you may be hit with double council tax (a new thing the Scottish government is implementing). But you may also get clobbered with commercial water and sewage rates. You also have to pay for utility charges, and decent broadband is expected etc.

 

General stuff

People leave their rubbish, don't recycle, put used plates back into cupboards, without cleaning.

 

You have to find someone who is reliable and good at cleaning (which isn't easy).

 

Overall everyone made money, except us, we got all the grief and running about. Over 4 years and two houses, we made very little, made money on the houses when we sold, but both had lots of work done to them after we purchased.

 

Buy premium bonds, zero risk. Stay in a decent hotel or someone else's holiday home.

[ProDave]

It is mainly SWMBO who wants to do this.  I keep trying to explain all the difficulties as you explained.  If it was up to me I would just take our very nice comfortable caravan over for long holidays and stay on the camp site we know well and have used many times., I might even talk to the site owner about storage to see if we could keep the 'van there all season.

[joe90]

I was a landlord fir a couple of years and hated it, not sure the return is worth the hassle/ stress , if it were me stick with the caravan and leave it there if possible.

[Russell griffiths]

I have 2 holiday lets, don’t do it. 

If you cannot manage it yourself all you will do is pay any money earnt out for cleaners and maintenance. 

Everybody I know who remote owns has headaches with broken stuff on changeover day. 

 

As regards regulations, I cannot see how they could get holiday accommodation up to an epc of c

the amount of shepherds huts and old mobile caravans by me is crazy. 

Also if a holiday property is only let for the summer then why would it matter what the epc was. 

We only let ours until October, so adding extra insulation seems pointless. 

 

The new fire regs are ridiculous, I know of owners with 300 year old listed cottages being told to rip out  existing doors and fit fire doors and frames to all bedrooms. 

Edited December 29, 2023 by Russell griffiths

[Iceverge]

Every time you go on "holiday" you will spend your whole time painting, fixing, plumbing, redecorating and gardening. 

 

It might take the shine off the arrangement. 

 

 

[joe90]

My brother bought a site caravan on the coast for use 9 months of the year and he says it’s the best thing he could have invested in for themselves and immediate family.

[ProDave]

Yes you are all reinforcing my own view.

 

I have had enough years of being a residential landlord, so would never want to go back to that, the inability to get possession of your property when you want to being the big problem with that.  Holiday let should at least solve that one issue, but just adds other problems.

 

I share the view that the EPC requirements are stupid, but that is the stated aim of the Scottish Government.  Even more stupid is their dream to enforce all properties including owner occupied houses to be EPC C eventually.  That one is just hopium But it has reinforced my view that I don't want to buy a really lousy property unless it is priced properly to reflect the work needed.

 

The obvious advantage of our trailer caravan is we can take it to any site we want to, not always back to the same place.

 

Plus our plan is to spend more time on our boat as well.

[Marvin]

Hi @ProDave

 

I wouldn't commit to anything too costly at the moment. Locking some spare cash into 5% interest will give you less grief.

 

I have had clients with 2 homes and its nothing but a pain in the long run. (One couple with a house in France and they got a call at 2 in the morning to say that the roof had blown off)

 

I would really recommend watching the following:

 

Good luck 

 

Marvin

 

 

 

[ProDave]

Yes at the moment I am in the process of distributing the money to ISA's premium bonds and looking at fixed interests.  The only "issue" with fixed interests at around the 5% mark, is they don't just lock in the interest rate for that period, they also lock in your money with no access to it, so I would not want too much in there.  Already maxed out ISA's with more to be moved over in April.  That and PB's will get a good chunk of it tax free.

[ProDave]

Yes there is a lot more to retirement planning than most people think.  Conventional wisdom is just plan as much as you can in pensions aiming for the maximum pension income when you retire.

 

There are 2 big flaws in that conventional wisdom.

 

One is people concentrate on private pensions because they don't want to wait until state pension age to retire.  But if you have sufficient pension to retire early, then a few years later when you reach SP age, you will probably have more income than you need.  So your pension income needs to be more flexible so you can draw more at the start of retirement and reduce how much you draw when SP starts to pay.  I seldom hear anyone else mention that.

 

And retirement is not just about replacing earned income with pension income.  Most of us will have a bucket list that involves buying big ticket items. You won't do that, with a pension based entirely on income.  And that is what this pot of money in our case is for, those big ticket items on the bucket list, and the shorter term plan being discussed here is about preserving that pot against inflation until we are ready for those big ticket items, and possibly ticking one item of that bucket list (the holiday home)

[saveasteading]

3 hours ago, Iceverge said:

you will spend your whole time painting, fixing, plumbing, redecorating and gardening.

That was my reason for resisting the thought of buying, during expensive villa rental holidays. I would point at the rusty gate and ask if i'd be expected to sort it instead of relax. 

 

On the other hand, with kids gone and retired, I welcome having things to do, especially in a pleasant climate. 

Other people's mess and damage though would really irk.

[Iceverge]

There's an obvious answer with what to do with the cash here. 

 

Do another self build for the amusement of the forum!! 

 

 

[Susie]

I like my premium bonds we are both are maxed out with a little tied up in ISA.
every month we open the PB app together to see what we have won its a great feeling even if it’s nothing you get to look forward to the next month. 
you could invest in a car, I have a nice Jensen FF for sale with a bespoke build by husband, but would tie your funds up for a few years. 

 

[Crofter]

Holiday letting works for us, but it's not quite the passive income that you'd hope for. We have to lean on family and friends to help out, far more than we'd like. Of course it helps having lived and worked in the area for ten years first.

 

I still have misgivings about it due to the dire housing situation in rural areas. No wonder nobody can get cleaners or gardeners. It's simply not possible for a couple living off seasonal hospitality wages to buy a house in most of the more desirable parts of the world.

 

I console myself by thinking that one of our properties wouldn't exist if it wasn't built specifically for holiday letting, and the other one is still our primary residence whilst we are long term travelling. So we're not denying a family a place to live, and it's temporary anyway.

 

What really winds me up is the houses that are left empty for 50 weeks of the year. At least a self catering property is putting people in the restaurants etc. I'm sure the average tourist spends more per head than a local. But empty properties kill communities.

 

We've not found the new licensing scheme to be too much trouble, but it varies depending on your local authority. I gather in Edinburgh the costs are very high. Councils were instructed to set reasonable fees but some of them are taking the mick. I don't think it's as arduous as getting set up for long term lets, and frankly it was a bit ridiculous that there was no regulation whatsoever of the short term sector.

[SteamyTea]

2 hours ago, Iceverge said:

Do another self build for the amusement of the forum

Or to help your daughter onto the housing ladder maybe.

[joe90]

17 minutes ago, Crofter said:

What really winds me up is the houses that are left empty for 50 weeks of the year. At least a self catering property is putting people in the restaurants etc. I'm sure the average tourist spends more per head than a local. But empty properties kill communities.

+1

[Kelvin]

I’m against most holiday lets on principle as it drives property prices up in nice areas and reduces the number of available houses to buy (or rent) for locals. That said the only people I know that do well out of it are some friends with some bothies they built on their land. All to a high spec and come with the all important outside jacuzzi. 

[SteamyTea]

52 minutes ago, Kelvin said:

I’m against most holiday lets on principle as it drives property prices up in nice areas and reduces the number of available houses to buy (or rent) for locals.

I am not against them, they help pay my wages

What stops 'locals' buying and renting is the voting choices they make in the local elections.  They won't vote for more housing, in fact they vote against it with stupid arguments such as 'not enough schools' (but there are not enough children to fill the ones we have), the hospitals can't cope (we cope well with an extra million people in the summer), the roads are already busy (they don't have a (expletive deleted)ing clue what a traffic jam is), concreting over the countryside (have you seen most of inertia Cornwall, it is grade 3b and 4 farmland, and there is a lot of it), it is crowded here already (out of a ranking of population density, Cornwall is 259 out of 299, at 161 pp/km², and next to West Devon (we have no choice in that) where it is 50 pp/km²).

We desperately need to build another 200k houses, then people can have second homes for a couple of weeks a year and no one will loose).  We would be on a par, population density wise, with East Staffordshire, and that is quiet.  And the A30 will soon be dual carriageway all the West Camborne (where the MET Office have the first weather station in the UK).

[Ferdinand]

I think it's a multifaceted question, My comments:

 

1 - I'm not convinced inflation is much of a risk in the medium term - say 3-6 years. It is coming down and will stay down. So imo a 3-6 year fixed rate investment, ideally with an escape hatch cause to limit risk, is perhaps a good choice.

 

I wouldn't necessarily view a letting investment as a good money shelter; prices are falling and if someone finally gets a grip of housebuilding that may continue.

There are now lettings based investment trusts.

 

2 - On rental, I don't think it has been easy, and has been targeted, for a number of years. Down here in South Britain holiday lets are one form of private letting that still has most of the tax breaks in place, but which have been reversed for most of the rest (unless you incorporate).

 

3 - Are there a couple of other interesting options you could consider. Two that spring to mind are:

 

a - An annexe to your existing property, which you could let out for holidays as @Crofter does.

 

i Such an annexe could be attached - I once rented one with a locked door to the main house, which they just unlocked if a relative was currently in situ (this could be set up as a "spare room" to keep it tax free.

 

ii Or separate, in which case if your plot is suitably configured it could even be extended and sold off later as a separate dwelling if appropriate.

 

b - An as-packaged-as-possible investment in a safe market city which is wholly managed by an agent. In Nottingham I could tell you what to buy and who to have to run it, but I am not well informed about property in Scotland.

 

My sense for this option is that you need to be looking at something like a student flat or two in a city with a couple of universities and a hospital. That would deliver an income and an asset.

 

4 - Given current law, which I think broadly applies in Scotland as well as England the sweet spots for rentals are due to how you are taxed on your finance expenses as if it were income, so you pay the bank and then you pay the Inland Revenue as if you had kept it.

Current sweet spots are

 

a - Things with finance which do not tip you into higher tax band,

b - Cash purchases which you do not need finance on,

c - A property company.

5 - I'm a very firm supporter of ratcheting up EPC requirements, especially on Owner Occupier, and I'm jealous it had happened in Scotland and been canned in England. Should have been done from 2013 at the same time as for landlords, but Conservative Governments always pander cynically to their hoped-for Daily Mail reader supporters.

 

But this is a side-issue n your thread.

 

HTH

 

Ferdinand

[Pocster]

As a professional landlord ( interpret as relies on income from property, and  yes you are in Scotland ) ; SELL !

Don’t be a LL ; epc min c will come in . Regs will only ever go up . Most ‘casual’ LL’s I know are selling up . Increased regs / tax / hostility push you out the market . You don’t need the hassle / stress - leave imho 

[Crofter]

43 minutes ago, Ferdinand said:

 

a - An annexe to your existing property, which you could let out for holidays as @Crofter does.

Our new build letting property (see my profile pic) is across the road from our own house. For the first couple of years we managed it ourselves, although we still needed to find a cleaner because changeovers are during the day and we were both working full time.

A couple of years ago we moved on to our boat and began renting out our own house too, with a property manager in place to run everything. I'm not sure how long this arrangement will be in place. It's working, but as I said we rely too much on friends, neighbours, and family, to run little errands and generally help out. We're extremely grateful to them all.

 

I doubt you'd be able to replicate that sort of network if you stuck a pin in the map and bought a property somewhere to which you had no previous connection. Even the property manager themselves was found through a relative of a workmate.

 

One thing that hasn't been mentioned in this thread yet is the rules on your own use of a short term let. To qualify as a Furnished Holiday Let it must be available for rent 210d of the year and actually rented out for 105d. No single stay should be over 30d.

 

If your intention is to stay in it yourself for a good chunk of the year then you'll probably fall foul of this, unless you are just using it over the winter when it's empty anyway.

 

43 minutes ago, Ferdinand said:

 

 

[Adsibob]

8 hours ago, ProDave said:

So your pension income needs to be more flexible so you can draw more at the start of retirement and reduce how much you draw when SP starts to pay.  I seldom hear anyone else mention that.

Well you can withdraw up to a quarter of a private pension as a tax free lump sum from the age of 55. That’s pretty good deal in my view. You then have options with what to do with what’s left, including

• taking all or some of it as cash
• buying a product that gives you a guaranteed income (sometimes known as an ‘annuity’) for life
• investing it to get a regular, adjustable income (sometimes known as ‘flexi-access drawdown’).

 But back to your initial question, I have some friends who I would hope know what they are doing, because he is a very successful investment banker, who now specialises in wealth management, and she is a solicitor at one of the big London firms. About two years ago we were discussing rental investments because at the time I had two flats I was renting out and they had money to invest and wanted to get into BTL properties. I tried talking them out of it, but they modelled the numbers and ended up buying a maisonette in Norfolk and operating it as a holiday let. I think the way they’ve managed to make it work is:

 

1) they bought in late 2021 when prices were pretty depressed;

2) they don’t need it to make much or any profit really, as they love Norfolk so much that they go there quite a bit and get quite a lot of use out of it. They just see it as a way of protecting their investment from inflation, as property in sought after areas should at least go up with inflation in the long term.

3) they did their mortgage calcs when rates were low. Who knows if it’s affordable when they have to remortgage - though maybe you would be buying without a mortgage.

 

 So my feeling is that unless you absolutely love where you are buying, so much so that a holiday let will make it affordable, then go for it. But if it was me, I would rather invest in something else, and use the income from the investment to rent a place whenever I wanted to go there or, as you say, go there with your own caravan. 
 

I’ve given up one of my BTLs, and if it wasn’t because I need to keep the other one so that my kids have somewhere to live in 15 years‘ time, I would sell that too.

Edited December 29, 2023 by Adsibob

[ProDave]

Lots of interesting points raised.  Still none giving me a convincing reason to buy a holiday let.

 

The location we are thinking of is a place we have visited for holidays many times and like.  But as everyone keeps pointing out, we don't know anyone that lives there.  So the biggest challenge would be finding someone to manage the changeovers and the cleaning for which they would obviously be paid.  Anyone care to take a guess at what someone might charge to clean, change bedding etc, manage the handover and then do the laundry ready for the next handover for a 1 or 2 bedroom holiday let?  Then I could start running some figures.

 

My view of the property market is somewhat tainted by what happened when trying to sell our previous house.  Property can be an illiquid asset at times that you cannot sell unless you are prepared to give it away.  Especially in a remote location like we are considering.  

 

There might well be scope for some form of holiday let where we live now.  We still have the old static caravan, though that has a planning condition prohibiting it's use for occupation.  But there might be scope for some form of holiday let in it's place.  but we would only consider self catering, having previously run a B&B we found it too demanding and restrictive of your time.

 

Still lots to think about.

[Adsibob]

14 minutes ago, ProDave said:

Anyone care to take a guess at what someone might charge to clean, change bedding etc, manage the handover and then do the laundry ready for the next handover for a 1 or 2 bedroom holiday let? 

These are London rates, but I pay my cleaning lady £16.75 an hour, going up to £17.60 in the new year, and she would be very competent at doing all of that. I’m not sure how long it would take, maybe 2.5h to clean and do laundry and check inventory, then a further 30 minutes for check in. That said, you could invest in a lockbox so that check-in and check-out could be done without any staff, the staff is just there to check the key was returned to the lockbox, etc.