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Are holiday homes a good investment-South Devon holiday home

If you’re thinking of buying a holiday property, now could be a fantastic time to generate a sound financial return on your investment. Here’s everything you need to consider when asking are holiday lets a good investment?

The past few years have seen an enormous growth in self-catering holidays within the UK, and following the initial news of Covid-19, holidaymakers are swapping trips abroad for UK staycations, leading to a particular increase in demand for self-catering accommodation in the last 12 months. This flourishing market, together with other contributing factors, have created an ideal environment for positive potential letting income and revenue. For those thinking of buying a holiday let, you could experience a lucrative return on investment.


Are holiday lets a good investment?

Owning a holiday let can be financially rewarding and an overall fantastic endeavour, but it will only be profitable if you treat it like you would any other successful business. Making the decision on whether to invest in a holiday cottage to let requires careful consideration, and understanding of the the market, interest rates and all the other influencing factors.

1. Staycation demand in the UK

4 Bolt Head holiday cottage - are holiday lets a good investment?

The staycation market has been increasing for some years now. Sykes Cottages reported that In 2018, 66% of the population opted for a staycation (up 56% from 2017), and in 2019 Brits planned to take an average of three UK holidays. In fact, 2019 was record breaking for Coast & Country Cottages, with bookings that rocketed a massive 46% up year on year.

Since then, following the news of Covid-19, demand for self-catering staycations has positively boomed at an unprecedented rate, as Brits have shifted from travelling abroad to getaways closer to home that feel safer and are less costly.

Google Trends identify that in the 12 months prior to February 2021, searches for ‘staycation ideas’ grew by more than 200% compared to the previous time period. But that’s not all, following the latest government announcement on Monday 22nd February 2021, at Coast & Country Cottages we experienced record-high booking levels for self-catering stays in South Devon. With the staycation trend looking to continue, this could be the ideal time to invest in a holiday let.

2. Higher income from short-term lets

Short-term holiday lets tend to be more lucrative compared to long-term rentals. The weekly rate charged for holiday lets are significantly higher, which increases earnings.

While it’s worth being aware that owning a furnished holiday let will incur more expenses on taxes, utility costs, property management fees or general maintenance, the gross revenue per annum is a lot higher.

3. Use your holiday home and offset the costs

Are holiday lets a good invesetment

The biggest motivator for investing in a holiday let is that you can combine owning your dream holiday home with running a successful business and offsetting the cost of your own holidays.

We recommend that if you are thinking of buying a property, you choose somewhere you would like to holiday yourself. With our beautiful countryside, breathtaking coast and lively towns, there are plenty of fantastic locations to choose from in Devon.

Letting your property as a furnished holiday let permits numerous advantages, as it is considered a trade rather than an investment. Benefit from offsetting mortgage interest costs against your revenue, as well as reconciling council tax and other bills against your income.

For a comprehensive look into what costs you can offset against your holiday let, visit the HMRC HS253 help guide for more information.

Disadvantages of owning a holiday let

  • Ongoing costs: It’s important to remember that you will have ongoing costs on a permanent basis, and you should be sure to budget accordingly. Read through our blog on the cost of running a holiday let for everything you need to consider.
  • Seasonal income: An important drawback to consider is that many holiday lets can attract fewer bookings during the winter. So, if you have a mortgage, it pays to put aside funds to cover your repayments at times when the property is not being let.
  • Managing your business: Creating a perfect experience for every guest can be demanding, with frequent changeovers, maintenance requirement and guest communication. If you are not using a letting agency, this can be quite a big commitment. Read our blog on choosing the right holiday home management service for your holiday let for an in depth look at the holiday let management service solutions available to you with Coast & Country Cottages.
  • Earnings: Whether your holiday home is likely to be a profitable venture in the long term depends on a variety of elements. The type of property, its location, number of rooms and property features will determine the pricing strategy and overall revenue. Additional considerations like permitting short breaks, allowing pets and off-season discounts contribute to additional bookings.

For a more in-depth look at what to expect, read our blog on how to start a holiday let business.

What should you look for when choosing a holiday home to buy?

First and foremost, your holiday home should be somewhere you love to spend time and not just a source of potential letting income. Location and type of property will be a key factor in your success, and will dictate the amount you can charge and the ultimate return on your investment.

Are holidasy homes a good investment 2

Here in the South West there are a huge variety of beautiful properties in spectacular locations to choose from, read our blog on where to buy a home in South Devon for an insight into what to consider when looking to buy a holiday home.

What are the costs involved in buying a holiday home?

If you are considering buying a holiday home as an investment, there are a number of ‘hidden costs’ which should be factored in before you make your purchase.

Stamp Duty

Stamp duty can be an unforeseen charge which can add thousands to the cost of a buying a property. It is a tax levied on the sale price of a residential property that cost more than £125,000. The charge is only applicable after the minimum threshold price is reached and rises in conjunction with the value of the property thereafter.

If you already own a property or are purchasing a property as a holiday let, you’ll usually have to pay an additional 3% stamp duty on the total property purchase price, which is in addition to the normal rates.

Are holiday lets a good investment

*Stamp duty guide information from HMRC website

The rules and regulations are updated periodically, so it is advisable to make sure you are aware of the impact it will have on your buying price. Find out further information from HMRC on stamp duty.

Click below to work out a rough estimate of what your stamp duty will be.

Stamp Duty Calculator

Stamp Duty Holiday

To help the property market in the current climate, the government are offering a Stamp Duty Holiday where buyers will not need to pay stamp duty on properties up £500,000 with a discounted stamp duty rate on homes valued over this amount. The system has been extended until the 30th June 2021, then a reduced rate from 1st July 2021 to 30th September after which it will return to the standard amount.

Read our complete guide to the Stamp Duty Holiday as well as our Furnished Holiday Let tax blog for everything you need to know about this aspect of letting your holiday home.

When the time comes to sell your property, providing you sell at a profit, you may have Capital Gains tax to pay. Fortunately, if you meet the conditions to be a Furnished Holiday Let, there are a few different Capital Gains tax relief options available.

You may qualify for Entrepreneurs’ Relief which means that when you sell your property, the tax rate will only be 10%. Business Asset Rollover and Gift Holdover Relief are other possible avenues to receive respite from taxation.

What return on investment could you expect from a holiday let?

When buying a home to let you’ll be doing so with the aim of profiting either from capital appreciation or rental income.

If you would like a good idea of your property’s earning potential, our New Property Consultants can offer expert advice. Our team can talk you through the process of buying a property and give an idea of the income you can expect, based on our expert knowledge of our area, pricing and demand.

Enquire with our team of holiday letting experts today, call us on 01548 843773 or visit our let your cottage page to request your FREE Owners Guide.

Request your FREE Owners Guide

When is the best time to buy a holiday home?

So, you may ask, when is the best time to buy? With the current low interest rates on lending and the opportunity to pay either no or a discounted stamp duty rate, it’s an ideal time to look at investing in a fixed asset like property.

Are holiday lets a good investment 3

Trends indicate that the busiest day for property enquiries on Rightmove is the day after Boxing Day. According to estate agents, Luscombe Maye, the highest level of enquiries for holiday homes is during the month January. We had a chat with Luscombe Maye where they share tips on holiday home investments in Salcombe.

If you need assistance in buying a holiday home, we would be happy to put you in touch with some of our fantastic South Devon estate agents.

If you are thinking of investing in a holiday let, call our New Property Consultants for a no obligation assessment of earnings, bookings and return on investment. With our wealth of knowledge and years of experience in the holiday letting market, we can support you in making the perfect investment.

Contact our New Property Team on 01548 843773 for help and advice, whatever stage you are at. Alternatively, order a copy of our FREE Owners Guide.

Request your FREE Owners Guide

If you’re looking to start a holiday letting business, the following owner guides may be useful to you:

All property owner blogs

* At the time of publishing, Coast & Country Cottages has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s mortgage and saving affairs are different, further advice should be sought from a qualified supplier.