In the right conditions, short-term lets can reap much greater rewards than traditional buy-to-let, but they’re not something to take on lightly.
Property investors increasingly turned towards short-term lets during the pandemic, as the number of people taking staycations soared. For many, the financial as well as tax advantages are enough of a sway to tempt people away from long-term renting towards this market.
As well as the rise of the people taking holidays in the UK, which has been a growing trend since before the pandemic, people are more inclined than ever to want to rent an entire property rather than stay in a hotel as a result of the pandemic and lockdowns.
One recent study by Mintel, showed that almost half (47%) of families looking at holidays were interested in a cottage or villa for future trips, rather than a hotel, compared with just 25% who have experienced this type of holiday in the past three years.
Another factor behind the rise in interest is the environmental aspect, with eco-conscious holidaymakers more likely to stay closer to home. All evidence suggests that the popularity of the staycation is on the rise, and, with it, interest from property investors in short-term lets is likely to increase.
Reaping rewards of short-term lets
For those who invest in the right location – and the right property – the rewards are certainly notable. According to research by Revolution Brokers, the average rent at the moment for a long-term rental is £943 per month, compared with £1,137 for short-term lets.
This 21% premium average varies greatly depending on its location. The research found that, on a regional basis, the south west premium is around 35%, while the East Midlands, north east and West Midlands are also popular at 24% or higher.
Since the introduction of Section 24, the amount landlords can claim towards their mortgage interest payments has massively reduced. Short-term lets are classed as a business, which means mortgage interest payments can be deducted from profits.
There are also certain other allowances and reliefs that can be claimed, which you can find out more about on the government’s website.
Things to look out for
One of the key things to consider with a holiday let is location, due to the target tenant of either holidaymakers or business travellers.
Almas Uddin, the founding director of Revolution Brokers, says: “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.”
Short-term lets generally require more input than long-term lets, due to the frequent turnaround of guests. From advertising to bookings to managing the needs of the guests each time, this can be too time-consuming for some investors.
There are agents who will do all of this side of things, but this comes at a cost.
There is the potential for a greater amount of damage repair, maintenance and redecoration needed than in a normal buy-to-let, too. Holiday guests may arguably not take care of things as well as long-term tenants.
Demand remains high
Things have certainly improved in the overseas travel sector, but there are still greater numbers of people choosing to take holidays in the UK. Adding environmental awareness into the mix, many predict this trend to continue if not increase.
Almas Uddin says: “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 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 [also] 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.”
As an example, he adds: “We recently oversaw the financing of a short term let investment in Cornwall with a yield of 18.5 per cent versus the average of 4.0 per cent across the wider area, so they can be incredibly lucrative.”