If you plan to enjoy the benefits of a holiday home, but want to pay for it by letting it out to holidaymakers when you’re not using it, you should treat the property like the formation of a new business. With any new company, careful planning and preparation is the key to getting it off to a good start and making sure it remains financially viable.
Your holiday home should be viewed as a product which you are bringing to a competitive market. You need create the right product by buying the property and furnishing it in an appealing way, market it correctly to generate bookings (and repeat bookings) and manage your costs to improve profitability.
Whatever business model you decide to adopt, there are certain overall objectives which should be included:
Aims and targets
You should have a realistic target for occupancy levels in the first year, taking into account you need to allow time for word of mouth to spread. Your occupancy targets should therefore be staggered to increase every year.
You need to allocate resources and costs to the day-to-day running and maintenance of the property. This involves building up a network of trusted local tradesman to carry out emergency repair work, and always having the money available to pay them. You also need to factor in the replacement of furnishings in your long-term plan.
A profit-loss projection, measuring income against operation and marketing costs, will provide a good framework for allocating resources, especially considering the seasonal nature of many holiday lets. Anticipating reduced income in winter can allow you to plan ahead avoid getting into difficulties.
Contingency and exit plan
Not all business models turn out to be a success, so to avoid wasting time losing money, having a contingency plan in place for changing costs or income streams is a sensible precaution. However, should your personal circumstances change and you suddenly need to get rid of your holiday home, it helps if there is already an exit plan in place. This includes keeping an eye on the price of comparable properties in the area and working out your capital gains tax liabilities.