Finance/Insurance
When you consider buying a property as a holiday home, you need to consider, before you sign on the dotted line, what the return on investment is likely to be. There is no point in buying that ideal cottage if it is located in a hart-to-let location or if the market in that area is oversubscribed with often-vacant property of that type. You can probably work out how much the property might cost to run fairly accurately, not forgetting the servicing and wear-and-tear that is inevitably going to drain your wallet. If a mortgage is involved you will surely know how much that is going to cost you.
The amount that you can earn from your cottage, however, may be a bit more difficult to forecast. One of the most important considerations is the number of guests the holiday home will sleep – and seat – in comfort. The other factors are the location, the setting, and of course the appeal of the property and its condition. Charm comes with a bit more rent. Location can be vital. There is often a premium for a property near the coast, especially if there is a sandy beach nearby. But accessibility by car or train, convenience for holiday attractions, walking etc, and availability of local amenities are also important.
It is not very likely that you will have a detailed knowledge of market conditions unless you have done a great deal of homework or know the area and the holiday let business well. Generally, a letting agent specialising in holiday letting would be a good friend to make – talk to him or her about the local market, the pattern of demand, the likely length of the booking season, and the sort of rental that you might expect to be able to charge.
If you are taking out a mortgage then it is probably best to speak to a specialist broker who understands that you don’t plan to move in there yourself. The mortgage provider will want to know about the commercial potential of the property as well as, of course, your own financial circumstances.
Your costs are going to include insurance cover, and you’ll need a specialist policy that’s designed for the holiday home owner. Try telling your normal home insurer that you’ll be letting the house to umpteen people that you’ve never met, and sleeping there zero nights yourself in a 365 day period. Exit your normal insurer. Normal home insurance doesn’t usually cover public liability, which you need in case a guest is killed or injured in your property, and might not cover your own property if it was stolen when strangers were sleeping in your home and maybe not taking as much care of your security as you’d like. So you need specialist insurance cover and the good news is that there are specialist insurance brokers who provide tailor-made policies for holiday homes, and who won’t have a fit if you tell them that the key is left behind the bar at the “King’s Head” for holidaymakers to collect. Insurance is regulated by the Financial Services Authority, so owners should be satisfied that their chosen insurer is an FSA-registered advisor. EASCO suggests two specialist firms to its members.
A holiday home is of course a business and you may well need advice on tax. A tax advisor will be able to set you on your course. The expenses of running the property are business expenses as with any other business.
So, there is plenty to think about when you consider that idyllic cottage in the country. Do your arithmetic well before you buy. You may well be able to turn a profit if you have a good prospective income, reasonable running costs, and have thought of all the things you need to spend money on. Don’t forget your EASCO Subscription. There’s a good return on THAT investment.
Insurance links:
* Please note that EASCO does not offer financial advice. Please be sure to mention EASCO when you contact these firms.
http://www.holidaycottagesinsurance.com/easco/index.html Towergate Risk Solutions – EASCO special page