Our Guide To Purchasing A Holiday Home

Perhaps you've previously explored the idea of generating a rental income, but you've been put off by all of the issues associated with buy-to-let. If that's the case then there's a great chance that a holiday home could well be the perfect solution. That's because a holiday home allows you generate rental income with none of the problems that tenants in buy to let mortgages properties bring.

That's not to say that you should just jump in and buy a holiday home. Instead, you should ensure that you give careful consideration to all that running a holiday letting business involves. Let's take a look at what you'll need to consider.

Buying a holiday home

Before getting swept up with the idea of owning a holiday property, you'll need to stop and think about how you're going to fund your purchase. Just like with buy to let mortgages, there are specialist building societies and other lenders that can explain your mortgage options. If you were going to use the property as your primary residence, or as a second property just for your use, you'd be able to access a traditional mortgage product.

If you're looking for the holiday home mortgage option, the lender will expect proof that you can meet the monthly mortgage payment. There's also a good chance that you'll need a large deposit. As the holiday home is mortgaged, the provider is likely to insist that you have specialist holiday home insurance place.

Buying a holiday home in the UK

If you're looking at holiday homes in the UK, there are some advantages to this rather than looking abroad. It's perhaps easier to get a feel for the market and to investigate any local competition that may exist. It's also easier to get in touch with property management companies. They can give you a better idea was to the rental income potential and whether you're going to be restricted to seasonal income or if you can continue to generate income all year round.

While it may be tempting to go it alone if your holiday home is based in the UK, a good letting agency can make the experience more of a hands-off one. This means that, with the right property, in the right location, and with nearby attractions, you can generate a passive income.

When looking at generating more income, location really is the key. Yes, having holiday lets with a swimming pool, a hot tub, and other features may help, but prime locations are those that have plenty of nearby attractions and great scenery. Areas such as the Peak district are experiencing rising popularity and you can be sure that a holiday home here would be a good investment.

Buying abroad

When it comes to a holiday home abroad, you will find that there are different challenges. To start with, it may be more difficult to get a feel for the local lettings market. Purely buying a holiday let in an area you like doesn't necessarily make it a good investment. You need to be sure that it's in a location that holiday makers flock to so that it can keep generating a rental income. You also need to be realistic about the rental rates that you can charge and be sure that they cover your management company fees. You also need to make sure that your holiday let has something different to offer when compared to similar properties nearby.

The other obstacle you may face, when using a holiday home abroad, is securing a mortgage. You'll find that UK high street banks will not help you with your purchase and this can make it extremely difficult to buy holiday properties overseas. There are foreign banks that can assist but, since Brexit, the terms have hardly been favourable. You can expect interest rates to be on the high side and you'll need a deposit of up to 50% of the purchase price.

Holiday home insurance

As a holiday home owner, either in the UK or overseas, you will need to have insurance in place. While basic insurance is a must, having the right policy in place is simply a good investment. You need to ensure that you're covered for the likes of public liability. This means that you're covered should any be injured, or even die, while staying in your holiday let.

For a furnished holiday home, you're also going to want to make sure that you're covered for accidental damage. Replacing everything in a furnished holiday let is certainly expensive and something that you want to avoid. You can also add cover that sees you covered for lost rent. this can be a great assistance if your holiday cottage is empty for longer than you anticipated.

A look at some of the hidden costs

When you enter the holiday letting market, you're operating as a business. This means that you need to declare what you earn and pay the appropriate level of tax. Just remember that your gross income isn't all yours! If you fail to declare your earnings to HMRC, you'll leave yourself open to a whole host of problems.

It is certainly worth looking at using the services of an accountant. They can give you professional advice in terms of capital gains tax. They can also advise when it comes to tax benefits, and capital allowances, that you may be able to take advantage of. Getting the right tax advice makes all the difference when it comes to your profits.

You also need to consider business rates. As the property is not for personal use, and no one is actually living there, council tax is replaced by business rates. Be sure that you're clear on how these are in our chosen area.

Final thoughts

Exploring an investment property to use as a holiday home can be a great way to generate an income. The income potential is affected hugely by the location of your holiday cottage. It can be easy to get swept up in the excitement of your new venture and it's vital to take the time to plan the financial side of everything. Make sure that you have money set aside for when you need it and ensure that you limit other debt while you have mortgage payments to meet.

When it comes to protecting your holiday home, the best insurance product is vital. If you want to see what we have to offer when it comes to holiday homes, why not get in touch today and let us give you a quote?