There's no doubt that the holiday lettings business can be lucrative, but you must understand the financial commitments if you want to be successful. Familiarising yourself with the costs, which may be periodic or one-time, will help you budget for your holiday let business.
If you have already started the business, you also need to understand the cost of managing it, as this will help you plan your finances better and maximise your income.
Here, we will explain the cost of running a holiday lettings business and how these costs may affect your income.
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Costs of Running a Holiday Let Business
The 9 main holiday let management costs that you should be aware of are:
#1 Cost of Property Purchase
This is your first outlay of capital, especially if you have to purchase a new property for your letting business. The cost of acquiring the property depends on its area, the amenities present, the type, and the number of rooms in it.
The estimated cost for this stage could start from a few hundred thousand pounds to millions. There is really no limit to how far the cost may be.
On top of this, you also have to consider your mortgage costs. This can vary depending upon market conditions - something you can find more about in our holiday let mortgage guide.
#2 Cost of Setting Up
The cost of setting up the property is also important in the holiday let business. After you purchase a property for your holiday home, you will want to make some changes. You may want to fix the amenities, put new ones in place, and remove redundant ones.
You will also need to fix the interior decor for the building, get new pieces of furniture and ensure that the holiday home is visually pleasing and functional. All of these modifications would come at a cost.
Another important aspect of preparing the property for business is getting the required permits and licences to operate as a holiday let. You will also have to subject the property to health and safety inspection. These activities, permits, and licences could come at a cost too.
#3 Agency fees
Now that the holiday home is up and running, you may want to enlist the help of a professional property management agency such as Houst to manage its day-to-day operations. However, this does not negate the fact that you can run your holiday let solely.
However, handing over your holiday lets daily operations management may be your better option. It will not only save you the hassle of housekeeping, guest communication, check-in, and listings but will also help you optimise your property price.
Benefit from Houst's years of experience, versatility, global marketing, effective guest acquisition and revenue accumulation. You can also track your earnings and growth using our Dashboard.
As a general rule, the more services you opt for, the higher you pay. With this rule in mind, let's examine the breakdown of the three different fees you would pay for the services of the holiday let agents;
The commission fee is usually a percentage of the bookings you get in the property, especially when the agent is in charge of listing or advertising the holiday let.
Some holiday letting agent fees are as much as 15% to 25% on every booking on the property. Keep in mind that many factors determine the percentage of bookings the agent charges.
Usually, the commission rate varies depending on the type of service provided by the agent. If, for instance, the agent handles everything concerning the holiday home, you can expect the commission rate to be huge.
In any case, don't let higher property rental commissions put you off holiday letting, as this may mean that the agency offers a more comprehensive service. As long as they are earning you more money and saving you time compared to doing it yourself, it's more than worth it.
For more information on the services we offer, review our flexible plan to suit your property page. We offer a range of tailored holiday let services to suit your requirements and budget.
Another cost you might incur while dealing with a holiday let agency is the setup fee. Usually, this fee is a one-time cost that pays for the listing of the holiday home on necessary websites and platforms. And it may range from £100 to £250 depending on the holiday cottage letting agent's fee.
As the name implies, this fee comes due once a year, and it is to maintain your property listing on whichever websites or platforms it is on.
Listing a holiday home includes updating the photos and descriptions. These photos and descriptions need to be updated to prevent the listing from looking redundant. The annual fee pays for the regular updating and is usually about £100.
The commission, set up, and holiday let management fees are some of the costs you might incur by engaging a holiday or short letting agency to manage your holiday home.
Cost of Running a Holiday Letting Business #4: Insurance
As with other types of properties, it is advisable to take insurance on your holiday let property. This insurance covers you financially in case of a fire, break-in, or any damage to the property. The insurance can also cover the legal fees that you could incur if any of your guests injure themselves in your holiday let and when you experience a loss of rental income.
Usually, the standard property insurance may not cover the holiday let property, so you need a custom insurance policy. This custom insurance policy would cover the property and its content and other items related to the operation of the holiday home. Note that the holiday let insurance cost may vary from one provider or company to the other.
You should read the holiday let insurance policy carefully before committing to it, so you understand the holiday let insurance average costs. You can also have an attorney or legal counsel review it for you.
#5 Business Tax
The business tax is another recurrent cost that you have to factor into the cost of running a successful holiday letting business.
The business tax is a tax you pay on your holiday let. It is the equivalent of the council tax paid on residential properties, but because the holiday home is regarded as a business instead of a residential building, you pay the business tax.
Although holiday lets are subject to business rates, the criteria to obtain eligibility to pay a business rate differs by region or country.
For instance, a house in England has to be available for rent as a holiday let property for more than 140 days per year to qualify for the business rate.
In Wales, the property must be available for short let for about 140 days or more and must be let for at least 70 days to qualify for business rate instead of council tax. The same thing goes for the properties in Scotland.
The business tax you pay depends on the rateable value of the holiday home. In the UK, this value is calculated by the Valuation Office. If you have only one holiday home and its rateable value by the Valuation Office is less than £15,000, you may be eligible for some business tax relief.
#6 Cost of Updating Furniture and Decor
We have mentioned that you need to equip the holiday home with furniture pieces and interior decor that makes your property stand out. However, aside from the cost of getting these furniture pieces and interior decor, you need to set aside some amount of money to upgrade or replace these furniture pieces regularly.
This cost is a recurrent one and would only be due once a year or two years. Depending on the size of the property and the number of furniture pieces in the property, you may have to part with a few hundred thousand pounds to cater for this cost.
Things will naturally get damaged and wear down in your holiday let - setting aside a budget for this is essential. By vetting guests and selecting a target demographic, you can reduce the budget you set aside - vetting and reducing damage in holiday lets is something we specialise in.
Holiday Let Cost #7: Utility Bills
As with every other rental property, the holiday let will run on important services such as electricity, gas, water and other important services. It will also need refuse collection, internet, cable TV or streaming services and other entertainment options for your guests.
These services come at a cost, and you need to factor these costs into the cost of running a holiday let property. The total cost incurred for utilities should amount to a few hundred pounds every month.
#8 Holiday Home Maintenance
When you let your property, it's inevitable that there will be additional running costs from time to time. Furniture may break, walls can need touching up, glasses and plates can smash, and so on. It needs constant care and management service to stay in shape and remain conducive for your guests.
If you have a high volume of guests staying at your property, it is likely that you will have to pay more for cleaning, maintenance and repairs. Thus, it is important to budget some money for the property's maintenance. You can either employ the service of a cleaner or, better still, get in touch with our housekeeping team.
We hold our housekeepers to high standards and prompt them to report back with pictures because we want our host's guests to have an enjoyable stay. We also offer quality laundry service and linen to guests.
Many clients as "how much does it cost to clean a holiday let" and "how much do holiday let cleaners charge" - this varies, but you can expect to pay £50-100. Holiday let cleaning prices can vary significantly, which is why you should go with a trusted provider.
Another part of the holiday let property that might require constant and professional care is the garden. While the garden adds more serenity and beauty to the property, it could rapidly become a nuisance if it is not cared for properly and consistently.
Depending on the size of the garden, you may require a professional gardener to handle the maintenance of the garden.
Another aspect of maintaining a holiday property is rechecking that the building meets up with the safety standards set by the relevant authorities. To do this, you need to carry out scheduled safety checks and risk assessments on the building.
These holiday let safety checks cover gas safety, fire assessment and testing of the safety features and gadgets in the building, including fire alarms and fire extinguishers, to ensure they still work. All of these activities come at a cost, and you'd need to set aside a sizable amount of money to cater to these costs.
#9 Welcome Packs
One of the ways through which holiday let properties appeal to guests is the welcome pack. Welcome Packs, as the name implies, are packages used to welcome guests upon their arrival to your property. The package usually contains things like snacks, toiletries, local goodies and souvenirs.
The idea behind the welcome pack is to make your guest or holidaymaker feel welcome and ease their settlement in the holiday home. This is why it contains small but important items they might need upon arrival at the holiday home.
While it is not compulsory, it is very important and could be a deciding factor in the type of ratings you get from your guests. Because it is optional, you don't need to break the bank or spend too much on the welcome pack.
While the number of welcome packs you need would depend on the number of rooms available in the property, you should not have to spend more than a few pounds on each welcome pack.
Running a holiday letting business is a profitable venture, and like all successful business ventures, you need to dedicate enough financial resources to keep the business running. Here, we reviewed the major costs that you would incur in the business, covering both recurrent costs and one-time costs.
In summary, the nine main cost you should be aware of are:
- Cost of property purchase
- Cost of setting up
- Agency fees
- Holiday home insurance and building insurance (maybe even public liability insurance)
- Business tax
- Cost of updating furniture and decor
- Utility bills
- Holiday home maintenance
However, note that the country where your holiday let business is situated plays a pivotal role in the costs you would incur, as the majority of the costs highlighted in this article hold for holiday lettings business in the UK. You can reach out to our team to guide you through what you'd need for your country.
Houst is a professional hosting service provider for landlords and homeowners. We handle listings and hosting management for properties and ensure that our hosts make more money without putting in the extra effort.
Are you a homeowner or property manager looking to use your property as a holiday let or increase your current rental income? Trust Houst with that and contact us today.