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Are Short Term Rentals a Good Investment?
With reports of over 80% of brits taking a “staycation” within the UK across 2021 the number of property investors looking to benefit from the trend as they recover from the months of payment holidays and rent arrears over lockdown. With owners of short-term rentals being able to enjoy numerous tax benefits, increased flexibility with tenancies and a potentially higher rental income, we ask are short term rentals a good investment?
What Are Short Term Lets?
As the name suggests, a short term let is a rental opportunity that is available to its occupiers for a reduced period of time. Whereas a tenant will typically seek to reside within a rental property for around six months to a year, short term lets will commonly only available to renters for periods of less than six months.
Can You Make Money From Holiday Lets?
in recent months an increasing number of rental property owners have sought to generate a new source of income through holiday lets. Brought about by the rise of so-called staycations over the course of the pandemic, opportunistic landlords looked to purchase property in tourist hotspots in efforts to cash in on the holidaying trend. And with industry experts placing their predictions for the trend to maintain demand for short term lets for the next five years, owners could certainly be set to profit from their short term lets.
Are Holiday Lets Exempt From Council Tax?
To the relief of owners, council tax does not have to be paid on a short-term holiday let. With this being said the landlord will need to register for business rates and ensure that the property is available for rent at least 140 days each year. This is because council tax is applied to property that the owners use as their main residence and not to let out commercially.
Further to this, owners of short-term rentals will be able to claim for any furnishings, appliances and fittings with any losses in revenue being offset against the next tax years liability.
Can I Do Holiday Lets on a Buy to Let Mortgage?
Whereas those that rent out their property will typically turn to a buy to let mortgage as their first port of call, however, when looking to use the opportunity as a short-term rental landlords will need to obtain a holiday let mortgage. The loan functions identically to a buy to let mortgage, covering the majority of the property’s market value, but this property must be let out as a business. Similarly to the buy to let mortgage, owners will be expected to provide a far larger deposit than a residential mortgage, typically around 25% of the property’s value. Further to this, the mortgage providers will also demand that the rental income is approximately 145% of the monthly mortgage payments.
Are Holiday Lets a Good Investment?
There is no doubt that the interest within short term lets across the UK is growing, with some of the most profitable areas seeing landlords boast rental yields of around 30%, a far cry from the typical figures seen across the private rental sector. Whilst this will see landlords mainly aim to attract tourists rather than full time students, families or young professionals, those that are keen marketeers and can cultivate interest in their short-term rental will be set to profit.
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