Tips for buying a holiday rental
Learn the best tips for converting your home into a rental
December 2024
Are you ready to take the plunge and buy a holiday rental? Read here before you do anything. We give you the lowdown on what you need to know, so now you can make your investment with your eyes open.
1) Know the regulations
You might think that it’s easy enough to buy a property and immediately start to rent it as a holiday flat, but in fact, this area can be quite a minefield. Before you get going, check for regulations that will affect your investment. These may be national, regional, or local. In some countries, such as Spain, different cities often apply their own unique rules to the holiday rental industry.
Check to see if you need a licence to be a holiday landlord, and find out how easy it will be to get one. As the industry grows, more and more cities are clamping down on holiday lets, and in some cases, licences are almost impossible to acquire.
Always make sure you ask a lawyer with experience in the holiday rental industry in your particular area. Don’t just go by what the property seller tells you — after all, they’re trying to get you to buy.
2) Check your finances
When you’re buying to rent seasonally, the mortgage rules can typically be different. For example, in the UK, landlords must apply for a special holiday home mortgage. It requires a deposit of between 25% and 35% and has higher rates than a standard mortgage. There are often fewer mortgage providers available, as this is a specialist market.
It’s important to do your financial due diligence before you get started. You might find that you need to lower your budget to make your seasonal flat more affordable.
3) Consider location
Location is always a buzzword when you’re buying real estate, and that’s particularly true when it comes to a seasonal rental house. Crucially, you want to make sure that you choose to purchase property for rental in an area where tourists like to visit.
It helps a lot if you know the tourist industry or have a contact who can offer advice. Some destinations, including big cities like London or Paris, will always attract visitors, but properties are extremely expensive there. You might wish to take a risk and buy a seasonal rental in an up-and-coming destination. Prices are often cheaper, and there is a higher risk-to-reward ratio.
4) Think about seasonality
When you’re picking a property, you need to think about your rental strategy. Some holiday residences, such as city centre flats, will generally perform all year round. However, you might prefer a seasonal rental property that has a distinct high season and low season. These include winter cabins, beachside properties, and so on.
There are advantages and disadvantages to both types of property. A year-round holiday home will regularly see consistent income, but you’ll also need to be on top of things all year round. A strictly seasonal rent can make a lot of money in a short time and doesn’t require the same level of year-round commitment, but it will likely be vacant for long periods.
You’ll also want to think about any huge local events. For example, if you buy a holiday flat in Edinburgh, the annual festival will be hugely important for you. It’s a great time to make a profit, but that also means you’ll probably be tied to your property for the duration of the event.
5) Look into health and safety
Safety first! Every country has its own regulations about what constitutes a safe property. This is something you should start thinking about when you want to purchase a holiday rental. Put simply, if your property is not up to scratch, you may need to spend a lot of money bringing it in line with safety regulations.
Things to watch out for include safe routes out in the event of a fire, suitable bannisters and railings on stairs, landings and balconies, low ceilings, fire hazards, swimming pools, slippery surfaces, uneven flooring and more. These may seem like small problems when you’re making your investment, but they can end up costing you a lot.
6) Have a look at taxes
Before you get started with your investment, think about how the financial side of things will work. You don’t want any nasty surprises when the taxman comes calling, so make sure you’re familiar with the relevant laws governing the sector.
Depending on where your holiday residence is located, you may find that holiday rental landlords pay higher taxes than other landlords. If you’re a foreign investor buying property abroad, there may be additional tax barriers to cross. However, it’s not all doom and gloom. In some cases, you may be able to benefit from tax breaks. Speak with a professional about the tax implications of your purchase and your business plan.
7) Watch out for hidden costs
Remember, buying a property is just the start of your new business venture. There will be a number of ongoing costs associated with your new holiday home. How will you take care of maintenance and cleaning? Do you plan to do it all yourself, or will you hire professionals? What about a property manager? Professional help costs more, but it can save you time and ensure that jobs get done correctly.
You should also consider the costs of utilities and wear and tear. Holiday guests do not have the same thrifty mindset that you might have in your own home, and utility bills are often far higher in a rental.
8) Plan necessary upgrades
Is it too soon to start thinking about upgrades when you buy a property? We think it’s never too early. As you look at properties, consider the ways you can develop them to make them more profitable.
That might be purely aesthetic: you want features that will look good on a holiday rental website and encourage guests to stay. It might also be financial. For example, you may think about upgrading appliances and heating systems to be more ecologically friendly — and kinder to your bank balance. Plan these in advance so that you have a clear idea of how much you’ll spend.
9) Make a business plan
Finally, it’s important to think about how you’ll move forward after you buy the property. Where and how will you advertise your holiday home? Which holiday rental portal will you use? What is your target market, and how will you attract them? What kind of brand do you want to create?
If you have answers to these questions, you’ll find it easier to pick the right property and start your journey as a new holiday rental landlord.