What should you know when looking at short-term lets? - 21/06/2024

As a savvy investor, you're always on the lookout for opportunities that can generate strong returns and build long-term wealth. In the UK property market, one asset class that has been gaining significant attention is holiday letting. With the rise of staycations and remote work, demand for quality holiday rental properties has soared in recent years. Here's why you should consider adding holiday lets to your investment portfolio in 2024.

The Booming Staycation Market

The pandemic-induced travel restrictions fuelled a surge in domestic holidays across the UK. Even as international travel rebounds, industry experts predict the staycation trend is here to stay. Sykes Holiday Cottages reported a 59% increase in average annual turnover for UK holiday lets between 2019 and 2022, reaching £24,000. This heightened demand translates into higher occupancy rates and rental income potential.

Attractive Returns on Investment

While traditional buy-to-let remains a solid investment, holiday letting can potentially deliver superior returns. According to research by Scofield’s Insurance, holiday let landlords can earn up to 30% higher yields compared to long-term rentals. In prime locations, a well-managed holiday let can achieve occupancy levels exceeding 40 weeks per year.

Tax Advantages

One key benefit of holiday letting is the favourable tax treatment compared to standard buy-to-let properties. Furnished Holiday Lets (FHLs) are considered a trade for tax purposes, allowing owners to claim certain expenses like mortgage interest against their income. Capital allowances for furniture and equipment can also be deducted.

Potential for Capital Appreciation

Beyond rental income, holiday letting offers the opportunity for capital gains if you invest wisely. Properties in desirable tourist destinations or up-and-coming areas can see significant appreciation over time. This dual income stream from rentals and potential price growth makes holiday lets an attractive long-term investment.

Diversification Benefits

For investors already holding traditional asset classes like stocks and bonds, holiday letting properties can serve as valuable portfolio diversifications. The returns from short-term rentals tend to have low correlation with public markets, helping to reduce overall risk.

Finding the Right Location

As with any property investment, location is vital for a successful holiday let. Popular tourist hotspots like Cornwall, Devon, and the Lake District remain in high demand, but competition can be fierce. Investors may find better value in emerging destinations or "hidden gem" villages that offer a unique experience for holidaymakers.

Professional Property Management

One concern for investors is the perceived hassle of managing a holiday let. However, there are numerous professional property management companies that can handle everything from marketing and bookings to cleaning and maintenance. This hands-off approach allows you to enjoy passive income without the day-to-day responsibilities.

While holiday letting does come with its own set of considerations, such as compliance with regulations and potential changes to tax policies, the potential rewards make it an attractive option for investors seeking diversification and strong returns. As the UK staycation market continues to thrive, well-positioned holiday letting investments could be a lucrative addition to your portfolio in 2024 and beyond.