Real Estate Investing 4 mins read

Why investors are preferring holiday homes to buy-to-let (BTL)

By March 24, 2019 May 28th, 2019 No Comments
rent to own investments UK

Dakota Murphey has experience in property management with her portfolio of properties expanding in the South of England. Her passion for renovation projects is shared through her writing to help educate and inspire others.

For a long time, it was the case that if you wanted to invest in property, this meant that you were going to buy-to-let (BTL) a residential property. However, it is now more common for investors to look at a range of different options. One of the most popular is buying a holiday home. This has a surprising range of benefits that you might not be aware of.

Here we take a look at some of the reasons that should consider buying a holiday home to let out as your next property investment.

The tax benefits

One of the major advantages of letting out a fully furnished holiday compared to a standard buy-to-let property is generous tax treatment. Yes, holidays homes still attract the additional 3 per cent stamp duty that applies to any purchase of a second home, but you can look forward to advantages such as mortgage interest tax relief. Additionally, you can offset some of the costs of furnishing and maintaining the holiday let with pre-tax profits.

It is also worth pointing out that holiday lets are not eligible for council tax and may also be able to avoid local business rates. And if that wasn’t enough, when you come to sell the property there are a number of tax reliefs that can be applied to reduce Captain Gains Tax.

It should be mentioned that your property will only be eligible for these tax benefits if it is let out for a minimum of 105 days per year.

The rental yields are better than you think

Of course, from an investment perspective it is important to do your research into how the kind of realistic numbers that you can expect from renting out your property. It’s a good idea to speak with a holiday letting agent familiar with the local area, who will be able to advise on the likely rental income that you should expect.

Your rental yields will naturally depend on how often the property is occupied. Some worry for example, that no-one will want to use a UK holiday home outside of the summer months, however, the outlook is better than you might expect. The average for holiday homes in the UK is between 20 and 24 weeks per year – and this can be much higher in popular locations.

The fun of choosing your holiday home

One of the reasons that some investors are choosing holiday lets over buy-to-let is because that is an investment project that can be more fun. If you are thinking purely about a BTL that you are simply going to act as the landlord for, it might be difficult to get passionate about it, but choosing a holiday home is a lot more enjoyable.

This is your chance to buy a second property that you will actually be able to stay in and enjoy for the year so it is important to select one that is going to be right for you. Of course, this can create a conflict of interest, so it is vital to be thinking about the marketability of a holiday home as well as whether it is suitable for you.

An investment you can enjoy

We have touched on this, but it is a vital element for why investing in holiday homes has become so popularity. Ultimately it is more enjoyable when you can buy a property that you’ll actually be able to use yourself. If you are new to property investments this can be an interesting way to examine the market and take yourself out of your comfort zone.

Don’t forget:

  • As with any property, it is vital to have a property survey carried out. This is especially important if you are choosing a characterful older property that you think would be perfect as a holiday home. These properties typically need a lot of work, and can have hidden probably and defects that could only be noticed by an experienced surveyor. Remember your lender will not conduct a survey on the property, so it is up to you to know these details before you purchase.
  • If you have never considered a holiday home in the UK before, now could be the perfect time. The so-called ‘staycation’ has become very popular, in part due to the weaker pound, so as holidaymakers get more of a taste for destinations at home rather than abroad, British holidays homes can be a fantastic investment.