The Holiday Let/Serviced Accomodation Guide

the Basics – Holiday Let/Serviced Accomodation

WHat is it?
Why do it?

Holiday Lets are what the old school call this strategy. It conjures up images of a 2nd home by the seaside, that one may like to retire in one day, vacations in occasionally and otherwise lets the property out over the year. Serviced Accommodation is the new school term which includes the aforementioned, but also relates to inner city locations and anywhere where there might be a high demand for short term lettings, like near a hospital for example. Some Investors have city based pied-a-terre’s and SA can work great with these.

SA is not just about the holiday market. People could want to move in short term to break a chain during a house purchase, they could be testing a new area before buying, they could be contracting for a job, or seconded to another work location (warehouse staff for example) etc.

The returns can be north of 20%, even for basically furnished accommodations and the strategy provides cashflow diversification, because it is less correlated with BTL rents. The cashflows can be highly seasonal, but that depends on the location, and the strategy doesn’t work in all locations. (For example, some UK cities have lots of tourists and short term let demand however property prices are astronomical, meaning the yield on the investment is low)

What to consider

SA needs to tick more boxes than a typical BTL:

Location – Property should be walking distance from public transport (train/tube station) for inner city lets. Should be close to the main attractions in the city/town.
Amenities – WiFi essential. Parking is a big plus. Special amenities like sauna’s/hot-tubs mean guests may pay an inordinate premium – Luxury lets in general can command a significant premium in the right hotspots. Durability of furnishings (like bed linen) is key.
The Council – Planning permission may not be needed to let out secondary homes (C3 use case). Planning permission will be needed in other situations to change the use case to C1 – getting this permission will be much harder in some areas of the country vs other areas
Redress – One must sign up to one of the two allowed property redress schemes
Compliance – One must sign up to the ICO since there is handling of people’s data. Also one must ensure data processes are secure.
Safety – Fire regulations must be followed, per Government and council regs – this may include wired fire alarms and fire doors. General Health/Safety regulations need to be followed. Childproofing rooms is a good idea too. EPC, Electrical checks (EICR, PATs) and annual Gas Safety are imperative.
Insurance – Public/Private Liability Insurance is highly advised.

Covenants – In some cities (London) many buildings have lease/title covenants prohibiting short term lets, before viewings for potential properties, the property lease/title should be downloaded and checked – cheap/easy to do
Business Rates – If its a small let, there may be no charge, business rates only kick in for substantial lets
Marketing – use Expedia/Booking.com/airbnb etc to market your property
Automation – Check-in can be contactless and automated, for guest ease. Use keypad lock boxes or door locks with codes. When run at a larger scale, having a porter can provide some comfort that people will be more respectful of the space
Alterations/Refurbs- Sometimes properties can be bought, then sub divided into smaller rooms. The smaller rooms can be let out for similar rates to the larger rooms, meaning you have added to the value of the property, but also created income out of thin air. This requires a deep analysis of the market in that area and seeing what different types of lets can go for what price
Financing – A normal BTL mortgage is unlikely to work, there are specific holiday let mortgages that should be looked at
Market – Luxury Lets attract a significant premium, but may not cost much more to set up

Personal vs LTD OWnership

A question of TAx and costs

FHL/Furnished Holiday Let tax benefits will be removed in 2025. There are also some regulation changes still being considered by the government, with potentially a new use class just for holiday lets.

Focusing on the prevailing applicable tax situation in April 2025. Lets take a crude & simplified look at the maths, lets use the example of a Holiday Let yielding 40% on the deposit gross profit per year, borrowing 75% of the purchase price which is £100k and compare annual costs:

LTD
Gross profit = 40% & 25,000 = 10,000
Interest: 5.5% * 75,000 = 4,125
Tax = 25% * (10,000 – 4,125) = 1468.75
Net Income = 10,000 – 4,125 – 1468.75 = 4,406.25

Personal Name
Gross profit = 40% & 25,000 = 10,000
Interest: 4.5% * 75,000 = 3,375
Tax = 40% * (10,000 – 3,375) = 2,650
Net Income = 10,000 – 3,375 – 2,650 = 3,975

I the above example the person is in the higher rate tax band and the LTD option is more tax efficient even with the higher interest rate – one should note that the superiority of LTD or personal ownership depends on many factors, for example: the LTV, changes in interest rates, property strategy and the yield etc. All these things being different on different deals means between either LTD or personal ownership, that one will not always be better for a person than the other.

Bear in mind the LTD offers tax efficient options to delay tax and save for future deals, which is a further reason to prefer LTD ownership

Corporate Structuring

tax savings

When Equity Investors place money with us, the money is invested at the Holding company level, all earnings from the rental are treated in a special way so as to allow you the option of taking the money out, or instead to use the money on the next deal without being taxed – this way your money from the rental can accrue for years without being taxed. The corporate structure we use also protects the assets from being touched if there were any guest disputes.

Why Property vs other assets

Property supremacy

A diversified portfolio is important for all investors, but the supreme benefits of the Holiday Let/SA business is that it provides all the benefits of stocks and bonds and commodities combined. Let me explain. Like bonds: It provides reasonably stable cashflow (if located appropriately). On stocks: The return on invested capital are well in excess of the average returns for major stock indices like FTSE100/S&P500 (~7% per year). Commodities: Property acts as a natural inflation hedge, because it is a real asset, so when the government prints money, naturally house prices rise accordingly, net migration is also up in the UK meaning less houses for people. The net effect is rents will rise but also house prices will go up too.

Rates reaching 5% recently have spooked BTL investors but not those doing SA/Holiday Lets because they understand the power of leverage. It will always make sense to borrow at 5% (or even up to 10%!) if you are earning 20%+ on that money. For BTLs, many barely breaking even these days, it is often a pain for landlords to be dealing with the admin for minimal return.

Rent Guarantee

Rent guarantee provides landlords with lower risk income than standard BTLs, despite what Letting agents say – Rent Guarantee/SA management is not a service they can provide so OFCOURSE they will dissuade you from the strategy, so that you stay with them doing BTLs and earning pennies! The contract is structured as a tenancy with our company, and provides many benefits.

Evictions for normal tenancies can take 6+ months and no-fault evictions are banned now so BTLs keep you trapped even if you are not making a profit – notice can be structured into the contract to suit you.
Deposits are not limited like in BTLs and can be set towards your comfort level
Get 5% above your asking rent, with scheduled and agreed rent increases
Contract length can be tailored to your needs at 2-5 years with break clauses to suit you
In exchange for the above: we use your property for Holiday Lets and we are fully liable for any and all property damage

Deal Sourcing

1% of purchase price

Deal Execution

2% of purchase price

Holiday Let/SA Setup

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Holiday Let/SA Setup and Management

20% of net income
(marketing/cleaning/checkin etc.)

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Upcoming Show

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06 / 14

2021

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