Buying a Holiday Home or Holiday Cottage Let
There are usually two priorities to consider: your own requirements and what you like if you intend to use your holiday home yourself and what is the best buy for the market.
Buying and running a holiday home can be quite complicated. You could be buying something to be run as a business or which is an established business but you may also be buying a place you wish to use privately from time to time. In this latter case, it is important to recognise it when you do your accounts if, only, in a notional way.
We shall not presume to advise on what you want so let’s look at what the market likes and factors you need to take into account on the letting front. Some may seem quite banal where others may seem obvious but a few may come as quite a surprise. The general steer, in our area, is that the market wants modern, hotel style interiors and the appropriate regional look, externally.
It is important to consider several factors and to be quite methodical when seeking out a suitable property. If you buy right a holiday let can be a huge success. Buy so-so, you could have a struggle on you hands. Buy badly, it would be better you had not even started out.
Things to look for when buying a holiday home
Local national and regional laws and other wrinkes will be considered in a new page to come shortly.
Location is key
Off road, secure parking
Garden, fenced so it is child and pet proof, preferably
Views, dual aspect rooms even better
Proximity to beach, pubs, shops, public footpaths, etc:
Showers. (Bath users often put up with showers, but shower users often refuse to use a bath)
The number a let can sleep and the permutations
Relative size of lounge
Ease of access
Mobile phone reception
Hot tub? Swimming pool?
Lodge / House / Cottage / old or new /
If you are buying a ready to go let, the furnishings please see guidance on our Setting Up page
Supply of local help for changeovers
A managing agent, if required
D.I.Y. marketing including a web site
Potential income and projected running costs fixed and variable
The seasonal nature of demand
Any special considerations, such as the position on inheritance tax
Planning and other regulations. Excellent information: Accommodation Know How
How much you wish to send, if required, to convert / update / maintain the holiday let. (Including your time).
Estimate income and costs for the proposed property with a profit and loss account (Once you have created a template, this can be surprisingly easy).
Location is absolutely essential. A sleep 2 flat in a provincial town such as Leominster has very little chance competing against a sleep 2 annex in the South Shropshire Hills a few miles away.
How many a holiday home sleeps is very important. The way niches behave varies. This year (2013) the sleep 2 and sleep 3 niches are not doing very well where the larger holiday lets are keeping business buoyant. This is a symptom of the economic conditions; sleep 2 holiday cottages tend to be more of a descretionary spend. Where it might have been a good idea to invest in a sleep 2 holiday let in 2009, now, if you can, try to purchase a sleep 6 or above.
However, other factors come into account. There is, now, a distinct preference for ensuites. This makes the choice between a sleep 6 without ensuites all round compared to a sleep 4 with weaker niche demand, difficult. You have to balance up the lower occupancy and possible slightly lower rates with significantly higher demand for sleep 4 with ensuites as opposed to restricted or no ensuites and a sleep 6 holiday home
Getting it right can be complicated. Providing at least one en suite is a very good move. They do not have to be large but when on holiday with children they can be a real luxury for parents. They are often very much appreciated by grandparents, not least, because they can often use them more frequently over the night and feel more secure and happy not to have to go down corridors in these situations.
The single most common error we come across is the provision of twin beds that cannot be joined together to create a superking. Divans are usually a good bet to ensure you can get the full benefit from the couples, as well as the market that prefers separate beds. This omission can have as much a damaging impact on bookings as not providing an ensuite.
Buying a holiday home or holiday cottage let can have pit falls but armed with information and a strong will success is radically more likely.
Buying a let on a Holiday Park.
This is a special area. The first thing is to get a solicitor who is experienced in the lettings market and has some experience, if at all possible, in dealing with holiday parks. Potential pitfalls can be greater in this area than in the purchase of holiday lets elsewhere.
Some basics to check:
The service charge, what it covers and if and how it can be changed within the terms of the lease in relation to areas covered, performance and cost.
The ground rent, how much and whether or how much it can be changed within the terms of the lease.
Whether and how much any fee may be if you choose to sell the holiday home.
The types of tenancy on the park. Some specialise in low cost housing where tenants are expected to vacate for one month in twelve for legal reasons, otherwise they are, for all intents and purposes, full time on the park. Others offer a mixture of full time and holiday letting. You need to check what is the most suitable balance to suit you and how the existing arranagement influences how the park is managed and how it contributes or detracts from the quality of the location.
It is also well worth checking the quality of other homes in the park and the general sense of whether it is well managed or not. It can be a problem in that you are in the hands of others to a certain extent. In extreme, you could find your good quality holiday home in poor company and you could end up paying for a situation which was completely out of your control.
The park owners must be up to scratch and you should take time and care to check as much as you can including visiting and speaking to several other owners on the site; they should, ideally, be those who are in addition to any owners recommended by the park owners. Any difference between the two groups will help you judge the quality of the management of the park. Owners can be adept at selling having done it many times before where it is usually a first time experience for vendors.. take your time.
Owning a home on a holiday park can be a good choice but it is vital to be very careful and take your time before signing on the dotted line.
Make certain of some basics
Whatever a salesman says, be aware, that in most situations ‘written overrides verbal’. Because they said something, if contradicted in writing, you could find you have been under a misapprehension. This is important. Listen to a salesman but check everything he says.
You need to establish ownership rights to your lodge. Get something, in writing, saying that the moment you have paid, you own the building itself. This is make sure that no one else has a call on what you thought was yours, should the holiday park go under and a supplier want to call on relevant assets. Ask about any guarantees or warranties attached to the lodge before purchasing and make sure appropriate reference is included in any contractual agreement. Get copies of the paperwork and contact the guarantors to check their validity; aspects such as transferability, what is covered, what you are expected to do by way of maintenance and care and so on are relevant.
It does no harm to check if leases can be extended and how this might be carried out. So if you are buying a second hand lodge with, say, 30 years left on a 50 year lease, it is worth trying to return to a full lease period. It is worth doing this down the line, but a civilised time before signing on the line
Some costs to be aware of.
Rates. These can be a net figure of around£700 but this will vary. You need to check if any rates relief applies for holiday letting activities
Site charges / fees. Be prepared for charges of £3,500 and above. £4,500 pa is not uncommon and these charges are often levied several months in advance.
You should allow at least £450 pa for insurance but this depends on location
Annual boiler servicing at about £110
A figure of around £1,500 pa should be set aside for external repairs and maintenance
Drain down or clearing water from the plumbing for unoccupied winter periods.. if you pay for this it can easily cost £150
Gas, Electric and water can come to £1800 + vat.
Incidental costs include smoke alarms, welcome packs (if letting to holiday guests) changeover costs (holiday guests again), wear and tear maintenance of furniture, kitchen appliances and so on.
These costs easily come to around £9,000 pa before the business has started. You can do quite a bit to reduce them with D.I.Y. but you should be prepared for costs of at least £7,000.
However, there are other costs such at any marketing costs for holiday let bookings. On bookings worth, say, £8,000 if you use a low cost local agent this can cost £1600. If you have the time and are willing to do much of the marketing yourself this can reduce to between £200-£800 depending on the listing site or other methods you choose. As your home is not near-by you will need to provide a television licence and pay for any relevant health and safety checks. These may not be compulsory, but are often required depending on your agent, tourist board or park requirements.
If you want to leave the park and sell up.
There are nearly always exit charges. Make sure you are fully aware of how they are set, what they are and what you are obliged to do. They can easily be 13% + vat (i.e. effectively 15.6%) of any sale price and this figure should be considered as a long term additional cost to the purchase price. If you sell your lodge off your own efforts it might be worth trying to negotiate a discount on commissions which, on the face of it, can be eye watering.
It is not really worth relying on capital appreciation although it can offset a declining value of a lease as it draws closer to its expiry. The market has seen some appreciation over the years, but the present supply coupled with less buoyant demand is relevant. Values appear to be more volatile than traditional residential properties and can shoot up and down by as much as 50%. In general, if you can, it is worth trying to get a lease of 40 years or more and avoid 20 years or less.
Site charges or ‘fees’.
This can be confusing. Sometimes they appear to be nothing more than an element to the rental. The idea that you automatically have the right to expect certain levels of grass cutting, maintenance etc: needs to be soundly tested before you agree to anything. Make sure that you do have the right to expect use of site facilities and that any charge or fee will ensure that they are available for your use of the use of your guests / holiday let tenants and that such provisions will be provided and maintained at stated levels of quality and availability. Get this stuff in writing as part of the deal.
The economics are marginal if you wish to break even on direct running costs before capital costs by letting to holiday guests. A rough guess would indicate that you would need an income of at least £12 – 14,000 pa to break even if you factor in changeover costs and all of the above. In real term,s this represents renting out at least 25-30 weeks a year. In many areas, this target might be quite difficult to reach. If you add capital costs on, say £100,000 the chance of running at break even is slim.
Do not be carried away by the idea of ‘free holidays’. If you stay, you should factor in use of the let for tax purposes so that you should not claim a proportion of that year’s costs for the time you use your lodge. In addition, if you choose weeks that would have been rented out, you also lose the income. Theoretically, it could be less expensive to rent out your lodge to paying guests and simply go stay elsewhere.
There is a luxury of having your own holiday place but it is essential to be fully aware of the real costs and dodge any obvious pitfalls before launching out on what can be a very pleasant and rewarding activity. I do hope all this has not put you off. Much of the information on marketing and other aspects directed to more conventional holiday lets also applies so it is worth trawling through it.
This information is provided by way of contrast and to prompt further investigation before acting. As ever, seek relevant professional or competent people to check before taking any decisions. Where applicable, all contents of this website are copyright Country Holiday Lets Ltd.