Short lets commanding 21% rental premium

Research by Revolution Brokers reveals that landlords could increase their rental income by 21% if they choose to target the short-term holiday let market over the traditional rental market. However, strict rules and regulations can make it a complex sector to navigate.

A short-term or holiday let is a property that people will rent out for short periods of time, usually between one night and one month and, for buy-to-let investors, it’s a sector that promises very strong rental premiums when compared to expected earnings on the traditional long-term rental market.

In England, the average monthly rent is currently £943, but the average for a holiday let is £1,137, a premium of 21%.

Regionally, this premium can be much higher. In the South West, for example, where you’ll find popular holiday destinations such as Cornwall and Devon, the holiday let premium is 35%, followed by the East Midlands (30%), North East (24%), and West Midlands (24%).

These rental premiums make holiday lets a very attractive investment for buy to let landlords but it’s a rental sector that comes with a fair share of complexity which potential investors should consider.

The pros

• Strong rental yields
• Problem tenants are only short lived
• Because holiday lets are classed as a business instead of an investment, landlords can deduct mortgage interest from their profits.

The cons

• Risk of void periods is higher.
• Landlord is responsible for paying utilities bills etc.
• Mortgage interest rates tend to be higher mainly because the risks associated with holiday lets are greater than with long-term rentals.

Rules, rules, rules

A big consideration when contemplating investing in a holiday let is the rulebook. First, the property must be available to rent for at least 210 days a year and no single let can last for more than 31 continuous days.

Mortgage providers will often want to know that you intend to make the property available for holiday lets and existing providers may want to change the terms of your deal.

Furthermore, different local authorities have different rules about holiday lets. Some will require a proper licence and others even insist that landlords apply for planning permission

The holiday let rulebook is extensive so landlords should take a look at the full government guidance before jumping to take advantage of the great premiums on offer.

Founding Director of Revolution Brokers, Almas Uddin, commented:

“The rise of Airbnb and other similar platforms has brought holiday lets to the forefront of people’s minds when they’re travelling around the UK.

No longer are hotels the first point of enquiry and while Airbnb has opened the door for non-professional landlords to earn money from their home – following strict guidelines in the process – the increased awareness has created a huge opportunity for professional investors who want to secure better yields than they may be able to do within the regular buy-to-let market.

Location is obviously all important for a successful holiday let – the potential for extensive void periods means they’re best suited to cities and popular holiday destinations local coastal or historic towns where demand is going to be reliable for much of the year.

We recently oversaw the financing of a a short term let investment in Cornwall with a yield of 18.5% versus the average of 4% across the wider area, so they can be incredibly lucrative.”