Renting out a holiday home can be a great way to earn an extra income. The holiday industry is booming and, with the surge in popularity of the ‘staycation’, your second property needn’t be abroad to make money.
Buying a holiday home to rent out is an important decision; therefore it is useful to have a good understanding of the profits and losses you may incur in the process.
Losses to consider:
You will need to take into account any mortgage or loan you take out to purchase the property. You will need to make regular payments towards these debts, so be prepared for this when revising your finances.
Remember you will need to pay all the normal utility bills for your new property, including council tax.
If you are going to connect a telephone line or Wi-Fi to satisfy the needs of your guests, you’ll need to pay the monthly charges. A TV licence is likely to be necessary too.
To protect yourself against the financially-damaging effects of an accident or personal injury occurring in your property, you will need to ensure you have the correct insurances in place. To reduce the risk of such an occurrence, you’ll need to budget for mandatory inspections such as a boiler check and Fire Risk Assessment.
Now for the profit!
Your profit will come from renting out your second home to holidaymakers. There are some important things you need to know about this profit:
You will need declare your rental income to HMRC and pay tax on any money you make from renting out your holiday home. If you were to buy abroad, you would need to pay tax in the country where your property is located and in your own country of residence too. However, you will often be granted credit for paying the foreign tax which can reduce the amount you pay in UK tax.
If you buy a holiday home within the UK or European Economic Area (EEA) and rent it out as a furnished holiday home, you may be able to reduce the amount of your income classes as profit, thereby reducing the figure that you will pay tax on, but claiming ‘capital allowances’ for items of furniture and other fixtures in your holiday home.
There are ways you can improve your profit:
Ensure your property is marketed in the best way possible, so that you attract the most guests.
Aim to increase repeat bookings and recommends by making a good impression.
Deliver a superb experience for your customers by keeping your home in good repair, and by including the amenities they will require. Also, putting together a welcome pack which includes a guide to the property and to the local area is likely to be a much-appreciated touch, even more so if this pack includes grocery basics, perhaps home baking or even a bottle of wine!
If your visitors have a good time, they are likely to reward you with their repeat business, and by recommending you, which could mean a reliable source of income for you. Also, remember that word of mouth is a powerful force, so you’ll want your customers to have nothing but good things to say about you.