If you are looking to invest in your first holiday home, it is important to understand the costs that will be incurred by running it to a high standard. In this article, we put together the true costs of running a holiday let – essential costs that you need to consider, in order to ensure that your property maintains profitability.
Fixed vs Variable Costs
The costs of running a holiday let can be split into two broad categories:
- Variable costs: these will be incurred each time you generate a booking.
- Fixed costs: these will arise inevitably throughout the course of running your holiday home, with or without bookings.
Below, we run through the most common examples of running costs, spanning fixed fees such as insurance, and variable fees such as maintenance.
Variable costs are directly related to guest bookings and the more bookings that your holiday home generates, the higher the costs. Classic variable running costs include:
Marketing costs and/or holiday letting agents commission:
In order to maximise your revenue, it is essential to market your holiday let to as big an audience as possible. This can be done through a portal such as Airbnb or by making your own website and paying for digital marketing through Google AdWords. Alternatively, you can contract the services of a professional holiday letting agent, such as Sykes Cottages.
Whichever route you choose to go down, there will be fees involved – the higher the volume of bookings or website traffic, the higher the fees. The most expensive (but effective) route tends to be holiday letting agents, who will receive commission with each booking of your holiday home.
The more bookings your holiday let generates, the more time (and therefore money) you will have to spend on turnaround. This broadly includes tasks such as laundry (don’t forget items like towels, bath mats, tea towels etc), cleaning and tidying, and resetting the house each time to an exceptional standard.
It is becoming more and more common for holiday let management costs to include the price of special extras such as welcome hampers, complete with a bottle of wine, freshly baked bread, or cakes, for example. While these fees are at the holiday home owner’s discretion, it is important to consider how much such costs will vary, depending on the amount of bookings.
If you are running a holiday let, it is essential that your guests have enough initial consumables to help them get started. As such, your holiday home should be well-stocked with all the necessary items – toilet roll, tea and coffee, sugar, washing up liquid, soap, dishwasher tablets, and so on. The higher the volume of bookings, the more you will need to spend on such perishable items.
Increased repairs and maintenance:
Compared to an empty house, a busy holiday let will inevitably incur additional, unexpected running costs from time to time. Furniture could break, walls need touching up, glasses and plates smash, and so forth. The fees for such repairs and maintenance is highly likely to rise if you have a high volume of guests staying at your property, as there will be far more potential for wear and tear.
Fixed fees are the unavoidable costs of running a holiday let, whether it is busy or not. As a result, these fees should be factored into your financial planning, to ensure that your holiday home is a profitable venture. Fixed running costs examples include:
Holiday let insurance:
Insurance is essential in order to protect your holiday home against potential damage or accidents that might occur to the property. This could be anything from burglaries and flooding, to fires and leaks.
Once your property is officially considered to be a Furnished Holiday Let (meaning that it is available to let for 210 days or more per year, according to HMRC), it is mandatory to pay business rates. These rates will vary from property to property and will be affected by factors such as the property’s size, its location, and how many people it can accommodate.
As with any mortgage, you will be subject to paying interest – the difference is that with a holiday home mortgage, the interest rates are typically higher than the rates on a standard mortgage. Don’t forget, if your property is considered to be a Furnished Holiday Let, you can offset the mortgage interest against your profit, thereby reducing your tax.
If you are running a holiday let which has a garden, you will need to maintain it to a high standard all year round – most likely requiring the services of a gardener, as it can be a substantial job!
As with the outdoor space, it is essential to keep your holiday home maintained to an excellent standard – guests should arrive to a property that’s clean, tidy and well prepared. If you run a successful holiday let with frequent bookings, it is likely that you will need to pay for a professional housekeeping service.
Whether it’s the cost of holiday let insurance, holiday let cleaning prices or maintenance fees, in this article we have explored the various costs of running a holiday let. If you are planning to purchase a holiday home, it is fundamental that you plan ahead – consider how you can keep running costs manageable, in order to make your holiday let successful and generate a good profit.
PRO TIP: A little known ‘rule of thumb’ from within the trade – if you are using a professional holiday letting agent to generate bookings and a professional holiday let housekeeper to manage the property and undertake the turnarounds, then expect your profit (before mortgage interest and tax) to be around 35%-40% of your gross booking turnover.
The information contained in this article is accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time and so please speak to one of our Consultants to confirm the most accurate up to date information. Nothing in this article constitutes financial advice. Please always consult your accountant or solicitor for all financial, taxation or legal matters. Your home may be repossessed if you do not keep up repayments on your mortgage. Pure holiday let, buy to let and commercial mortgages are not regulated by the FCA.