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Landlord Insider
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Property Investment Strategies – Short Term Lets

Dream beach house concept

Holiday and short-term lets or serviced accommodation are virtually the same model, but they may be used for different purposes. They can be an attractive proposition if your property is in an area that is conducive to it, think close to tourist attractions or areas that contain the offices of international businesses. This kind of strategy is an attractive one for property investors and is a common way to diversify a portfolio.  

What is the Short Term Let Strategy?  

This strategy involves letting out a holiday home or a room or a property for a short period of time, usually less than 3 months at a time. There are rules around holiday lets but they are not as onerous as those around HMOs or standard private rentals.   

This strategy can be very profitable if you can achieve a high level of occupancy. In a holiday let for example it’s relatively easy to fill up in summer, but the real money is made if you can make sure it is filled for the rest of the year too, even if the weekly or nightly rate is lower than in high season.  

There are a few different niches within this strategy:  

Air b n b properties:  

These are standard short term lets that involve anything from renting out a room in a property to renting out the entire property. Almost anything goes with air b n b properties.  

Bed and breakfast accommodation:  

In this instance you rent out rooms on a nightly basis, it usually involves private and family homes that offer between 4 and 11 rooms.  

Serviced apartments:  

These are more of a home experience where you rent out an apartment on a nightly basis usually for business purposes. These provide a higher yield and return on investment, but they are a bit riskier.  

Boutiques:  

Similar to serviced apartments but higher end. These are fully furnished, high spec flats that are meant to be rented for a night or a few days at a time. This is a niche within the strategy and requires research to ensure you’re setting up in an area where there is demand.  

Pros of the Short Term Let Strategy  

For the most part you’re less likely to have to deal with any long-term problems such as non-payment of rent or anti-social behaviour etc. However, problems still arise, usually in the form of complaints from neighbours about noise or increased foot traffic around the premises.  

You shouldn’t ever have to deal with evictions as these are short term lets and you aren’t offering a secure tenure.  

You can charge more overall for a short term let than for a standard property let. If you do it right and end up with high occupancy you can make more money than you can from buy to let. If you can get people to stay all year round the yields are high.   

There are fewer rules and regulations, and the tax treatment is more advantageous than for most of the other strategies.  

Except for checking a guest in or out, there shouldn’t be too much interaction with your short-term tenant, certainly not as much tenant management as with a traditional let.  

Cons of the Short Term Let Strategy  

The property you let out usually has to be very nice to attract paying guests so it will require an up-front investment to furnish the property using high quality furnishings and other mod cons.  

Traditional screening can’t be used, so you don’t have that level of security when it comes to who you are letting into the property.  

In order to make money you must ensure a steady stream of guests, so you need to turn the property around quickly in between renters. There is also less time between turn around periods so expect more cleaning and general maintenance to keep the property occupied. 

You have to constantly advertise the property to get people to stay. 

The work involved in running a holiday or short term let is near constant, marketing and frequent change overs have to be dealt with on a regular basis.  

It is difficult to find a mortgage that will allow this strategy to be used as lenders consider it a higher risk. This is because the income isn’t guaranteed as it would be for a standard let. You may also have to get specialist insurance for this kind of strategy.  

There is a higher risk of void periods if you can’t keep occupancy steady throughout the year.  

What’s Needed to Make Short Term Lets Successful?  

You either need to have a lot of free time to manage the property yourself or you need to hire staff to help you get the property ready for guests and to advertise the property on your behalf.   

You need to find the right property in the right location. If you own or can buy a property close to a tourist attraction, you’ll find it easier to get tenants in the summer months. Properties close to popular stadiums or venues where sporting events or concerts are frequently held can help you keep the property occupied throughout the year.  

International business headquarters are often on the lookout to put up staff who have travelled to the area for meetings, so finding a property close to a place like this can help you get business occupants throughout the year.   

Provided you research the area and ensure that there is a steady market for short term lets and that there isn’t too much competition in the area this can be a successful strategy.  

When Short Term Lets go Right  

If you’ve got the right property in the right area, you’ll end up with a high rate of occupancy throughout the year and a high yield on your property.   

When Short Term Lets go Wrong  

If you’ve purchased a property in the wrong area, you’ll have a lower rate of occupancy and you’ll end up with a lot of void periods, particularly over winter. In this scenario the chances are that your operating costs will exceed your profit.  

If you rush this strategy, don’t furnish it to a high enough standard or don’t provide a good experience for guests you’ll find it difficult to rent the property out.   

Who is Suited to Short Term Lets?  

If you have a good eye for the property market it will help you to find a property that is right for this strategy.   

An eye for interior design will be a useful asset particularly if you’re looking to get into the high spec short-term market.   

Time is essential if you are going to self-manage holiday lets, they do require a high input of time or you’ll need to employ staff to do this on your behalf.  

You’ll be the kind of person who pays attention to detail as you’ll need to consider what your guests will need on a day-to-day basis. For instance, you’ll need to add soft furnishings, plates and cutlery, towels for the bathroom, a TV and other forms of entertainment and more. You’ll also need to be familiar with the small print of any property finance you’ve used and your insurance too, so you aren’t in breach of your agreements.   

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