Looking to invest in an additional property but unsure on the difference between a holiday let (short let) versus buy-to-let? A second property can yield a good financial return but both have pros and cons. Here we breakdown what the difference is and things to consider when going down either route.
Typically associated with being attractive homes in picturesque locations a holiday rental can often be found in a tourist hotspot. However, it isn’t just rural locations now thanks to the likes of Airbnb which has paved the way for short-term lets in numerous locations from city centres to remote parts of the world.
An advantage of a holiday let is the fact you can stay in it throughout the year, however, there are certain occupancy restrictions you’ll need to adhere to. Regardless, you’ll still have the benefits of owning a second home-from-home that you’ll be able to enjoy frequently throughout the year.
Yet, while this all seems good you still need to appreciate that you’ll need to occupy the property for several weeks a year to offset your mortgage interest repayments. You’ll also need to ensure that it’s furnished and to a high standard. An attractive rental that’s well marketed should expect to get bookings consistently all year round.
But it’s worth remembering that a holiday let is going to be more hassle, from a week to week basis, compared with a buy-to-let home. The reason being your occupants will come and go, therefore, you’ll need to think about how it is going to be maintained. Are you local to the property or will you need to pay for a cleaning service to clean the property, change bedding and towels in-between guests?
Getting a mortgage on a holiday home can also be a little trickier than with a buy-to-let. A buy-to-let lender will determine an annual rental figure based on a visit and valuation of a property and therefore calculate your mortgage. However, it’s not as clear cut in the holiday let market due to fluctuations in lettings income, meaning your mortgage loan size for a holiday home is instead based on an income projection figure.
Buy to Let
In comparison to a holiday let a buy-to-let property can be found almost anywhere yet central locations tend to be more popular such as city centres or towns, and locations near to places of work. You’ll also be looking to house tenants on a long term basis, this and the fact the property is likely to come unfurnished means there will be little opportunity to stay at the property despite the fact you own it.
When considering a buy-to-let you will aim to have the property tenanted for as long as possible as this will ensure the monthly mortgage repayments are covered. If your tenants decide to move out yet the property is well maintained and within a popular location, you’re more likely to get new tenants compared to if it’s in a bad condition and less favourable location.
Speaking of which, while weekly maintenance of a buy-to-let is considerably less than a holiday let, you’re also reliant on your tenants looking after the property to a certain standard until their end of tenancy.
The process for finding tenants isn’t that quick either. You’ll need to advertise the property, check references when you find potential tenants and arrange the deposit and ensure it is held in an appropriate scheme. You could instruct an agency to manage this on your behalf. They can find your tenants, run all the necessary checks on them and sort out the paperwork. What’s more, they can also take care of issues during the tenancy, although this service doesn’t come free of charge and you’ll need to factor it in when working out your potential profits.
As we’ve discussed, there are advantages and disadvantages to both a holiday let and buy-to-let property. Essentially it comes down to whether you want a property that you can also enjoy at certain times of the year or whether it is purely an investment opportunity that you’re after.
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