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Pineapple
29-09-2011, 08:33 AM
This might be a bit of complicated one, hope I'm posting in the right section. Here's my situation:

My partner and I own a house and we're thinking of buying a second property to let out as a holiday let, which we will need to finance through borrowing. We have almost paid off the off-set mortgage we have on the house we own. The bank will allow us to take the funds we need to pay for the holiday let from this existing off-set loan. The rate is good and we'd obviously save money on fees, so this would be the cheapest way for us to get hold of the funds. However, I'm concerned about the tax implications.

We're projecting in the region of £8-10K per year gross income from the flat and it will cost around £140,000-£150,000.

My main questions is: Would we be able to set our mortgage repayments against the income from the holiday let flat if the loan was secured against another property?

I'm wondering whether it would best to create a limited company for the holiday flat business. I'm self-employed anyway, but just as a sole-trader (not Ltd). If we did create a limited company, would I be able to (or be wise to) include my existing work and its accounts in the holiday rental business even though it's in an unrelated field?

It's a little bit off-topic, but I'm also interested in people's thoughts generally on paying for a buy-to-let via an off-set mortgage. Obviously the aim of this is to pay it off quickly and thus limit the cost of interest on borrowing, but some people have been saying it's better to get a repayment mortgage and pay it off over as long a period as possible from the rental income, so that we would be funding it as stand-alone business, rather than basically sinking all our income into it. However, I'm concerned that this would mean it'd be a long time until we'd be in profit. On the other hand, it might make it easier to expand our portfolio with a second holiday rental (if this works out and we decide to do so) in a couple of years or so.

Sorry I've rambled on so much, hope it all makes sense! Any thoughts/advice would be greatly appreciated.:)-:

ram
01-10-2011, 07:25 AM
As no one has answered, but this does not answer your tax question, but
may help you see if you realy need the hassle.

At the bottom is interesting reading link with regards to holiday lets
( or upsetting - depending on your view point )

You say £ 150000 mortgage but only £ 8000 income.
£ 8000 less agents fees and not much letting in the winter, then you are
not gong to see any profit for years and years, plus the hassle of cleaning
EVERY week, instead of every 6 / 12 months if it was rented ot on 6/12 month contract.
You may not even make a profit after 10 years, as you will have repairs and
maintenence to add, as it must be maintaned, roof, gutters, driveway, etc,
and holiday homes get more wear and tear than 12 months contracts.

Assuming you borrow £ 100000, you could get 5% interest a year, and that's
£ 5000 per year.
£ 8000 income less expences could be £ 5000.

So why not just sit back in your own home, forget buyng to make just a few pounds
a year, have no hassle, no repayments, no agents fees, no refurbishment, and
no hassle as in the links below ?

income is only £ 660 per month, which wont pay a mortgage and all the other costs.


see http://www.landlordzone.co.uk/forums/showthread.php?40412-Holiday-Lets-are-breach-of-lease-Yes-or-No&highlight=holiday

R.a.M.

mind the gap
01-10-2011, 21:19 PM
So why not just sit back in your own home, forget buyng to make just a few pounds
a year, have no hassle, no repayments, no agents fees, no refurbishment, and
no hassle? The entrepreneurial spirit is clearly alive and well in you,ram!

LesleyAnne
01-10-2011, 21:53 PM
I have a BTL flat which I bought 11 years ago to let on a residential basis. About 18 months ago I looked into selling it and buying something suitable for holiday letting (our current lease only allows residential use). Taking into account all the extra costs, hassle, commitment and the fact that the general consensus is the letting season is 28 weeks, the increased income I would have generated on holiday use was minimal.

Holiday lets require servicing/cleaning/changeoever every weekend, the maintenance costs are higher (for instance, you will need to refresh and redecorate every year to keep it presentable, whereas a residential let may only need attention when tenants change). You also need to furnish it and keep that fresh, clean and up to date. You need to be prepared for the unforeseen breakdown of equipment - ie, you discover on changeover that the cooker/microwave/TV or whatever has died, and you need to run around in 2 hours on a Saturday afternoon to source a replacement before your new guests arrive at 5.00pm. I'm fairly sure when I looked into it that fire regs are higher for a holiday property. Your insurance would also be more costly, and you are more likely to have to claim - residential tenants are more likely to look after and respect their "home" whilst weekly guests coming and going may abuse things more. General wear and tear is also higher.

You also have the associated security risks of leaving the property empty out of season/between bookings, and worries like damp and burst pipes during cold spells over the winter months. You would also need to cover council tax all year 'round (probably on a business rate, but it does vary in different areas), when residential tenants pay their own CT, and unfurnished empty properties are exempt for CT between lets.

Taking all this into account, I discovered that my overall gain on a season's holiday letting was not worth the extra hassle of tying myself to the beck and call of a holiday property, so I have stuck with my little long-term let flat.

If you are keen to invest in the letting property, you would probably be better getting something to let to tenants, rather then the holiday trade. You don't even need to furnish it, as many tenants prefer their own furniture, so no contents insurance required.

I actually looked at a holiday let attached to a farm. When I asked the vendor why they were selling, she said it was too much of a commitment to be available every weekend for changeovers and welcome new guests, and she only lived next door!

ram
01-10-2011, 22:01 PM
The entrepreneurial spirit is clearly alive and well in you,ram!

Why, thank you, good of you to notice.

And Lesley Anne's post confirms mine.

Lets see now, I have a Rolls Royce, Ferarri, and 2 other cars, gained via
my "entrepreneurial spirit" ( but running costs is why I have no money
left to sue leaseholders in one of my other posts )
But that WAS 5 years ago, but I still have them, and spend my time annoying
people on here now.

Have run 3 businesses, taken risks, advertised heavily with the thought
" how much can I afford to lose if it does not work", but I don't play
with £ 150000 just to get £ 8000 back per year, eaten up with expences and
mortgage repayments leaving me with nothing.

Advice on here is not only how to make money, but also, how not to lose
money, and up until 3 years ago had a ringtone site, but got out of that when
virgin outbid everyone, at £ 1.50 per click, ( sponsored results ) so i got out
of that, so as not to lose money on 5000 clicks per day on my site at
1.51 per click ( even if they bought nothing ) to be the first on the web page search.

Sorry,, boring you all now.
Gone to bed.

But, thank you again.

R.a.M.

Pineapple
03-10-2011, 08:40 AM
Thanks Ram, LesleyAnn and Mind the Gap, really appreciate you taking the time to post your thoughts, you do bring up some interesting points and I've decided it would be wise to at least take a look at the long-term let option and add up the figures. I don't have much of much of a pension and I work in an industry that is certainly never going to make me rich, so I need to get this right!

My thinking behind why I'm considering holiday let, rather than LT, is that I would be less likely to have problems with tennants not paying, refusing to move out, etc. Also, the area where the property is shows a lot of promise, so I'm hoping property prices might increase significantly in the long term. (It's in Weymouth, Dorset, where the 2012 Olympic sailing events will take place and there has been a lot of regeneration as a result.)

The 8k-10k estimate is very conservative and I'm confident it would be closer to the 10k mark - and that is taking account of only 28 weeks rental, anything above that would be a bonus. Long term let over the winter could be an possibility, but somewhat unlikely as this market is so competitive at the seaside.

You're right, Ram & LesleyAnn, profit after costs would be very low. However it would cover the interest on the mortgage and some more besides to pay off the debt and my hope would be to make a good profit on selling the flat in 5-10 years time. Or perhaps using the equity to invest further.

But I take your points, maybe our money (or I should say the bank's!)would be better invested elsewhere.

Off to do some number crunching.... :(think):

ram
03-10-2011, 09:16 AM
maybe our money (or I should say the bank's!)would be better invested elsewhere

Having run a few businesses, but more importantly, have failed in two,
and those were my very first two,

where, like you, you get an idea in your head, do the numbers, and think, yes,
that will work, then lose a LOT of money because you were blind to the needs
of a business, market research, and think everyone wants what you like,
or likes the same interior design you like, when that is far from the truth.

You are at an age where you don't want to be borrowing money.
You are in an area where house prices are the most overpriced and
expensive [ Dorset ] ( Baring select places in London )

There is a limit that house prices can get to, and they have already exceeded
that, as people just cant afford the overpriced houses ( by a factor of 4 ).
You are "hoping" you will make a profit on a house, when people losing money
on houses at present. "Hoping" is NOT a sound investment strategy.

If a place is desiable, at a prime / nice location, it will be overpriced.

Also, don't be swayed by "The Olimpics", as that is one year only, not 10 years.

Come down to reality, buy a taxi, you will make more money.

Don't take offence at my words, as better to be aware of any pitfalls, than to
go with a dream that may backfire in this uncertain financial minefield
coming in the next 10 years.

R.a.M.

Pineapple
03-10-2011, 09:48 AM
Thanks again R.a.M, don't worry, I'm not offended at all.

I am aware of some of the issues you mention though, for example, I would definitely keep interiors neutral rather than decorating the way I would for my own place and I am doing what research I can, by speaking to local holiday letting agencies, etc. I would only buy if I could get it for a price I believed was below market value (albeit only by small amount.)

Is your opinion that there is no point in investing in any property at the moment?

islandgirl
03-10-2011, 09:52 AM
as a holiday home owner, just to put the other side of the case
For me I wanted the house so I could use it for a certain number of weeks a year. It was bought for my family to enjoy and is in a very special unique location. We decided to let so it would "pay for itself" and indeed it does. It does not cost me anything (the income from the lets pay for cleaning/repairs) and I get to enjoy my house with my family when I choose (I do not let through an agent but handle it myself). This is very different to looking at it from a business point of view which I appreciate. It is very unlikely you will get a holiday let in a great location at Below Market Value. Location always sells.

ram
03-10-2011, 10:29 AM
Thanks again R.a.M, Is your opinion that there is no point in investing in any property at the moment?

i am the last person to ask, but as you asked, re-read all the posts, and make
your own "Informed" conclusion, based on what you read and hear, and not
what you "think" you can achive, as you have no history in dong this before.

My opinion, for myself, is that people are strugling to get back the price they
paid for their houses, so prices are still artificially high, so If I were
contemplating a holiday let only, in Dorset for myself, I would not do
that for myself.

Only you know how you are going to finance this, and if the figures
work out, and when the SECOND recession will hit, which it will at some
point between now and next 10 years when more money has to be put
in to prop up the Euro.

( Stupid to make all those countries have the same currency, as if one
country goes bust, it brings down the rest. I told them that years
ago, but they would not listen )

Others wil have their own thoughts on buying property now, but based
on your age and never done this before, I would say no, don't do it,
based on you and your circumstances. ( and other items above )

Don't forget, include Council tax in the equation, and getting in your car
and putting the bins out on the road every week, at 7:45 am as holiday
let people just wont do it !

R.a.M.

islandgirl
03-10-2011, 12:18 PM
( Stupid to make all those countries have the same currency, as if one
country goes bust, it brings down the rest. I told them that years
ago, but they would not listen )


Don't forget, include Council tax in the equation, and getting in your car
and putting the bins out on the road every week, at 7:45 am as holiday
let people just wont do it !
R.a.M.

Agree with you about the Euro!
Disagree about the bins - my guests are happy to (or maybe I am just lucky)!

MrJohnnyB
03-10-2011, 12:27 PM
Also worth adding to the equation that I know of people that have seen yields of 20%+ on holiday lets. They can be highly profitable if you invest in the correct area!

islandgirl
03-10-2011, 12:33 PM
Location Location Location = lovely house in lovely spot will always sell - even in a recession!

Dottie
03-10-2011, 13:15 PM
You might like to check out this site for more views on that market...

http://www.laymyhat.com/forum/index.php

Pineapple
04-10-2011, 08:31 AM
Thanks everyone. I'm still mulling this over. 20% would do very nicely MrJohnnyB & IslandGirl! Even though I think it would be optimistic to expect that much, any return is better than none and I'd also eventually end up owning an asset I wouldn't otherwise have had, so there are certainly a lot of pluses. I am grateful to R.a.M for encouraging me to look at the downsides also though.

Off to have a look at your link now Dottie, thanks for posting.