Investing in property has long been a cornerstone of wealth-building in the UK, but in recent years, the popularity of holiday lets as an investment option has surged. With the rising trend of staycations, changing travel habits post-pandemic, and the potential for higher returns, many investors are eyeing holiday lets as a lucrative alternative to traditional buy-to-let properties.

But, are holiday lets truly worth the investment? The answer isn’t as straightforward as a simple “yes” or “no.” As with any financial commitment, there are numerous factors to consider, from the potential for profit to the challenges that come with managing a short-term rental business. In this comprehensive guide, we’ll explore the key aspects of investing in holiday lets, including both the opportunities and risks, so you can make an informed decision.

The Growing Popularity of Holiday Let Investments

In recent years, the holiday let sector has experienced rapid growth, and it shows no signs of slowing down. Various social and economic trends have contributed to this increase, making holiday lets a particularly attractive investment.

1. The Staycation Boom

The staycation trend has been one of the main drivers behind the success of holiday lets. As global travel restrictions came into play during the COVID-19 pandemic, UK residents turned to domestic holidays. Even with the easing of travel restrictions, many Brits have continued to choose UK-based holidays over foreign destinations, driven by both a desire for more affordable options and the convenience of staying close to home.

In addition, economic uncertainty and fluctuating exchange rates have made international travel less appealing for many households. Instead, destinations like Cornwall, the Lake District, Scotland, and Wales have become go-to spots for short breaks, creating a consistent demand for high-quality holiday rentals.

2. Remote Work and the “Workcation”

The shift towards remote working has opened up new possibilities for holiday let owners. With many professionals now working from home on a permanent or semi-permanent basis, the demand for longer stays in scenic, peaceful locations has increased. People are combining work and leisure by booking extended stays in holiday lets that offer strong Wi-Fi connections and a quiet environment. This trend, sometimes called a “workcation,” means that holiday lets are not just in demand during the peak holiday season but are now sought-after year-round.

What Makes Holiday Lets a Good Investment?

There are several reasons why holiday lets stand out as a promising investment. Investors are increasingly drawn to this sector due to the potential for high returns, tax advantages, and the flexibility that comes with owning a short-term rental.

1. Potential for High Yields

One of the biggest attractions of holiday lets is the potential for significantly higher yields compared to traditional buy-to-let properties. A well-located holiday home can generate impressive returns, especially during peak seasons.

This is because holiday lets are typically rented out at a premium rate, particularly during school holidays, bank holidays, and the summer months. For example, a four-bedroom holiday home in a sought-after location can easily fetch £1,000 or more per week. For investors who carefully manage their properties, the income generated during just a few high-demand weeks can exceed the total annual rental income of a buy-to-let property.

However, it’s important to note that these high yields come with certain conditions. Location is critical—holiday lets in prime areas like coastal towns, national parks, or historical cities tend to attract more bookings. Additionally, the success of a holiday let depends on how well it is managed, marketed, and maintained.

2. Tax Benefits and Incentives

Holiday lets also benefit from favourable tax treatment, making them an attractive option for investors looking to maximise their returns. If your property meets the criteria for a furnished holiday let (FHL) in the UK, you can take advantage of various tax benefits that aren’t available to buy-to-let landlords.

One of the main advantages is the ability to claim capital allowances on items such as furniture, fixtures, and equipment used in the property. This means that you can deduct the cost of these items from your taxable income, reducing your overall tax bill. In addition, mortgage interest relief is available for holiday let owners, allowing you to deduct the interest you pay on your mortgage from your rental income before paying tax.

Holiday let owners may also qualify for Business Rates Relief, provided the property is let out for at least 105 days per year and available to rent for at least 210 days annually. This can reduce or even eliminate the amount of council tax payable on the property, depending on its location and how often it’s let.

3. Flexibility for Personal Use

Another unique benefit of holiday lets is the flexibility they offer. Unlike buy-to-let properties, which are typically occupied by long-term tenants, holiday lets are rented out on a short-term basis. This allows owners to block off certain weeks or weekends for their personal use.

For many investors, this means enjoying a holiday home in a favourite destination while also earning an income from it when it’s not in use. Essentially, it’s a way to have the best of both worlds: a second home and a source of revenue.

4. Thriving Staycation Market

With more people choosing to holiday within the UK, the demand for high-quality holiday lets remains strong. Coastal towns, national parks, and tourist hotspots are seeing record levels of bookings, and this trend shows no signs of abating. As Jamie Johnson, CEO of FJP Investment, puts it: “The staycation trend is here to stay. People are realising that the UK has so much to offer, and holiday lets are a fantastic way to capitalise on this demand.”

Key Risks and Challenges of Holiday Let Investments

While the potential for high returns is enticing, investing in holiday lets is not without its challenges. Investors must be prepared for a more hands-on approach and the inherent risks that come with managing a short-term rental property.

1. Seasonality and Occupancy Rates

One of the biggest challenges with holiday lets is the seasonality of the business. Unlike traditional buy-to-let properties, which generate consistent monthly rental income, holiday lets are often subject to fluctuations in demand. During the peak summer months or school holidays, occupancy rates may soar, and rental prices can be set at a premium. However, during the off-season or winter months, bookings can drop significantly.

This seasonal variation can create cash flow challenges for owners, especially if they rely on rental income to cover mortgage payments and running costs. It’s crucial to plan for these fluctuations and ensure that income during the busy months is sufficient to cover any quieter periods.

2. Increased Management and Maintenance Demands

Managing a holiday let can be much more time-consuming than overseeing a traditional rental property. Since guests typically stay for short periods (a few days to a few weeks), there is a constant need for changeovers between bookings. This includes cleaning, maintenance, laundry, and restocking essentials.

In addition to the physical upkeep of the property, there’s the administrative side: handling bookings, responding to guest inquiries, processing payments, and managing reviews. For investors who live far from their holiday let, this can be especially challenging. Many choose to hire a property management company to handle these tasks, but this can reduce overall profits, as management fees typically range from 15% to 30% of the rental income.

3. Regulatory Changes and Legal Implications

Investors should also be aware of the regulatory environment surrounding holiday lets. In recent years, there has been increasing pressure on local governments to impose restrictions on short-term rentals in popular tourist areas. For example, some councils in places like Cornwall and Edinburgh have introduced restrictions on the number of days a property can be let through platforms like Airbnb to protect local housing markets and reduce the impact on long-term residents.

These regulations can vary from one location to another, and they can have a significant impact on the profitability of a holiday let. Investors must stay informed about any legal changes in their chosen area and ensure they comply with all local regulations, such as planning permission and health and safety standards.

A Comparison: Holiday Lets vs Traditional Buy-to-Let

For property investors, one of the main questions is whether holiday lets offer better returns than traditional buy-to-let properties. While both options have their advantages, they cater to different types of investors with varying goals.

1. Income Potential

Holiday lets typically offer higher potential income than buy-to-let properties, especially during peak seasons. While a buy-to-let property might bring in steady monthly rent, the short-term rental rates for holiday lets can be significantly higher on a per-night basis. A well-booked holiday let can generate more in a few busy months than a buy-to-let property might in an entire year.

However, the income from holiday lets is less predictable due to seasonal variations, so it requires careful financial planning to manage the peaks and troughs of occupancy.

2. Capital Growth

Capital growth is an essential consideration for property investors, and it’s where buy-to-let properties often have the edge. Properties in urban areas such as London, Manchester, or Birmingham tend to experience steady appreciation over time, providing long-term value in addition to rental income. Holiday lets, on the other hand, are often located in more rural or coastal areas, where property prices may not rise as quickly.

That said, certain tourist hotspots can see rapid appreciation, particularly as demand for staycations continues to grow. However, the capital growth potential of a holiday let is highly dependent on location and market conditions.

3. Management Differences

As mentioned earlier, managing a holiday let is a much more hands-on process than managing a buy-to-let property. With frequent guest turnovers, holiday lets require more ongoing maintenance, cleaning, and administrative work. For investors who prefer a more passive income stream, a buy-to-let property may be a better fit, especially if it is managed by a letting agent.

Maximising Your Returns: Best Practices for Holiday Let Success

To make the most of your holiday let investment, it’s essential to take a strategic approach to location, marketing, and guest experience. Here are a few best practices to ensure success:

1. Choosing the Right Location

Location is the single most crucial factor when it comes to the success of a holiday let. Properties in popular tourist destinations—such as seaside towns, national parks, and areas of outstanding natural beauty—tend to have higher occupancy rates and can command premium rental prices. Before purchasing, it’s essential to research the local holiday rental market and assess the competition.

2. Marketing Your Holiday Let Effectively

With so many holiday lets available, standing out from the crowd is essential. High-quality photographs, a well-written property description, and active marketing on multiple platforms (such as Airbnb, Booking.com, and Vrbo) are key to attracting bookings. Offering discounts for longer stays or off-peak bookings can also help fill your calendar during quieter times.

3. Enhancing Guest Experience and Reviews

Positive reviews are vital for attracting future guests. Offering thoughtful touches, such as welcome packs, local recommendations, or child-friendly amenities, can make a significant difference in guest satisfaction. Prompt communication, clear instructions, and a clean, well-maintained property will also contribute to a great guest experience—and good reviews, in turn, drive future bookings.

Conclusion

Investing in holiday lets can be an excellent way to diversify your portfolio and take advantage of the booming UK staycation market. With the potential for high yields, tax advantages, and the flexibility to use the property yourself, holiday lets offer numerous benefits for investors. However, they also come with challenges, including seasonality, increased management demands, and the potential for changing regulations.

Ultimately, whether a holiday let is a good investment for you will depend on your financial goals, willingness to take a hands-on approach, and ability to navigate the ups and downs of the short-term rental market. For those prepared to embrace the challenges, the rewards can be substantial.