What are the potential returns from investing in a holiday home?

Recent years have seen uninspiring returns from traditional investments. Equity markets have been volatile, property prices have, with a few exceptions, have been flat or falling, and returns on bank savings accounts have often failed to keep up with inflation, meaning the money held there has diminished in real terms.

Against that backdrop, it is no surprise that investors have increasingly looked to alternative investments, from art and antiques to watches and wine. Property-loving Britons have long been investing on holiday homes to generate and supplement income, as well as provide a base to enjoy holidays with less stress, and with more and more people now holidaying in Britain, has the time come to invest in a second home in the UK?

Holiday homes

There are, naturally, a huge range of holiday homes to choose from. There are many holiday parks around the coast providing a host of activities and very affordable static caravans with many home comforts. There are cottages in the grounds of stately homes, or close to golf courses. And there are, of course, houses in high-value and year-round holiday destinations like Cornwall, the Lake District or the Cotswolds.

Returns

At the heart of the holiday home’s attraction as an investment is its rental income. At peak season, you can be earning at a far greater rate than you would from a standard six or twelve-month residential lease, in fact in some cases you can get as much in a week as you would in a month. Holiday-goers are willing to pay a bit more for a place to base their holidays, especially if they are avoiding flight and car rental, and Landlords need to charge more to cover for voids. Expect anything from £250 to £10,000 a week depending on your property’s size, state and location. To appraise any investment, the first places to look are the numerous UK holiday rental and general property rental websites.

Voids

Voids are the biggest threat to the holiday-home investor. For most coastal holiday homes, the winter will be a write-off – and to make matters worse, outgoings won’t let up – and a 10-20% void rate in peak months should be factored into your calculations. Then, of course, there is the question of your holidays. If you plan to use your investment as a base for holidays, factor in another week or two (or more) of no rental income.

Capital growth

By and large you can expect to see the same growth in the capital value of your property as you would a normal residential investment. Capital growth remains a significant factor to consider, and looking for areas that you believe will develop as holiday destinations is advisable. Look into growing holiday trends, and keep tabs on infrastructural developments like new road and rail connections, new flights, as well as new tourist attractions.