SHORT TERM LETS
PROPERTY INVESTMENT GUIDE
RESIDENTIAL ESTATES
SHORT TERM LETS HOW IT WORKS
Purchasing property with the intention of renting it out as a short-term let has gained significant traction in recent years, driven by changing travel trends and evolving market dynamics. At our company, we boast an impressive 20-year track record of both managing and selling properties within this thriving model. We are excited to share with you the advantages of venturing into the world of short-term property rentals, as well as providing valuable insights into the key areas that can help optimize your returns in this lucrative sector. Within the realm of property rental, you may come across various terms that are often used interchangeably, including: Serviced Accommodation Short-Term Lets Furnished Holiday Lets Despite the different names, all these variants fundamentally adhere to a common format: they involve a host or landlord providing comprehensive services in a self-contained setting, available for nightly rental. For the purposes of this document, we will collectively refer to this model as a ‘Short-Term Let.’ By the end of this brochure, you’ll have a clear understanding of the benefits associated with short-term property rentals and be well-equipped to navigate this dynamic market while maximizing your investment returns.
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RENTAL TYPES
THERE ARE TWO MAIN TYPES OF STL Leisure Bookings:
Corporate Bookings:
Arguably the most well-known form of Short Term Lets, leisure bookings are easy to understand. Individuals, couples, families, and friends renting a property whilst visiting an area for pleasure. Leisure bookings can range from Coastal retreats to City breaks. When looking for a property to rent out for leisure bookings, it is worth considering what a particular location has to offer from a tourists’ point of view. For example, Cheltenham has been a popular choice for investors over the last few years due to the racecourse there and what it can generate when the famous Horse Racing Festival is on. Alternatively, Cornwall and the Lake District are popular areas for large families to get together and escape the hustle and bustle of City life. Most leisure bookings are made through well-known property portals such as Booking.com and AirBnB.
Short Term Lets have become increasingly popular for guests wishing to book temporary accommodation whilst working in a particular area. In the past, employees would have stayed in hotels, however this has changed of late. Unlike hotels, Short Term Let properties provide employees with all the home away from home comforts, flexible check in times and no responsibility with bills like a standard long-term rental requires. Employers will often refer to relocation companies when looking for accommodation in a particular area. This is why choosing an experienced management company that have contacts with such companies can be vital. Corporate bookings tend to be much longer than leisure bookings, thus meaning fewer void periods and less changeover costs to the landlord.
Mixing the two: Many investors will understandably try to source locations that provide them with both corporate and leisure bookings. Areas like Chester and York are perfect for this, both having close transport links to many major employers in the area whilst also being popular tourist
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BENEFITS Enhanced Returns For most, the biggest advantage of running their property as a Short Term Let, is the lucrative returns it can bring. If in a good location, with a high demand for bookings, the returns should be double that to a typical 12-month long term AST (Assured Shorthold Tenancy) rental. Flexibility When letting a property out as a long-term AST, returns are fixed for that period. However, as a short term let, landlords can increase nightly rates during busy periods of the year. There is also the option to switch the property onto a long-term rental for a 6-month period if demand is a little low for a certain period of the year. This is quite common in coastal areas, where during the summer, bookings can be very high, whereas in the Winter it can be better to switch to a long-term rental.
Capital Growth Although typically property values double every 10 years, capital growth is not something you can be guaranteed. However, when a property has been run as a successful short term let, it is highly likely you will get a substantial uplift on the price you paid initially for your property. This is because future investors will be able to see the track record of the property and almost treat the purchase as a lucrative business decision. At the same time, due to its flexibility, the property will also appeal to those looking for somewhere to rent out as a long term let and owner occupiers; therefore, when combining the three, it’s easy to see how a price war can occur.
Well Maintained One thing you can be assured of when running your property as a short term let is the fact the condition of the property will be checked regularly. After every booking, a housekeeping team will go in and not only clean it but also inspect for any wear and tear. Damages will typically be covered by the guests deposits depending on how the operational side of things has been set up. To compare it to a long-term rental, properties are unlikely to be checked until the tenant moves out therefore the condition is unknown for a long period. Even with longer term corporate bookings, most landlords will have the property checked and cleaned once a week. The benefits of a well-maintained property are that small issues are less likely to lead to larger, more expensive problems. Whilst in the long term, it also helps to increase the property’s value should the landlord decide to sell in the future. 4
Tax Advantages When submitting annual tax returns as a landlord, Short Term Lets fall under the ‘Furnished Holiday Lets’ category, bringing with it several advantageous tax benefits. Regardless of if the property is in a landlord’s personal or business name, costs can be offset against the income tax owed. These costs can include the likes of repairs, housekeeping fees, management fees, furniture, and any mortgage interest a landlord may be paying on their property. This contrasts directly with standard long term buy-to-let, where Section 24 restricts tax allowances for mortgage interest. With Short Term Lets, it may be possible to make a saving by paying business rates instead of council tax. There could also potentially be opportunities to mitigate Capital Gains Tax and Inheritance Tax. Although these are the key highlights, it is essential to take professional financial advice on what tax advantages and disadvantages may be involved No Tenant rent arrears Tenants failing to pay their rent owed is a fear of most landlords. The benefits of being a Short Term Let landlord is that you don’t have this to worry about. Nearly all bookings will be paid in advance. There are occasions when corporate bookings may be paid in parts; before the guest arrives, during the stay and towards the end of their stay. However, most management companies will ensure the majority is paid in advance to limit the risk levels. Guests in Short Term Lets do not have any security of tenure, any rights to occupy the property long term, nor benefit from other tenancy rights. Therefore, it is easy for landlords to terminate a short-term let and evict tenants should it be necessary to do so. Self-Use With no fixed long-term tenant in place, having a property on a Short Term Let basis means that you can not only make money from letting it out but also use it yourself. Particularly popular for tourist destinations, whereby having a place to stay in an area you like to visit can be very sensible and popular with the whole family! 5
CONSIDERATIONS
AS WITH ANY INVESTMENT, THERE ARE CERTAIN FACTORS TO CONSIDER IN ORDER TO BOTH AVOID ISSUES AND GET THE MOST OUT OF THE RENTAL MODEL.
Location
As with any form of property investment, choosing the right location is critical. It sounds obvious but it can often be overlooked; if it is purely for financial gain, you are purchasing a Short Term Let property. Then the key is to choose areas with high demand for accommodation and a lack of supply. Quite often this can be in more secondary cities and towns where there are less hotels but popular bases for large corporate firms, thus meaning employees will have less choice and pay a higher nightly rate. Preston is a great example of this; a University City on the doorstep of Manchester with large corporations such as BAE choosing it as a base.
Lease Restrictions If you are purchasing a leasehold property with the intention to let it out as a Short Term Let, you must check that the lease does not restrict you from doing so. The majority of older leases unfortunately prevent it, so it is very important to look out for this.
Management Company Having a good management company in place can be crucial in both enhancing returns and freeing up a landlord’s time. For most landlords, their Buy To Let properties are their secondary form of income and so very few want it to take up too much of their time. Not only will it help free up time, but a good Short Term Let management company will ensure the very best nightly rates and occupancy levels are achieved. Links with relocation companies and converting portal bookings to direct bookings are just a couple of examples of their added influence.
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Furniture All short term let properties are required to be self-contained, thus meaning they should be fully furnished. There are many companies out there now offering specific furniture packs for this sector, often saving an investor both time and money. Although these packs can be valuable, it’s also important to add your own touches to a property to make it stand out. Particularly if you are competing against other Short Term Let properties within a block. This doesn’t necessarily mean spending lots of money but can include small touches such as adding modern appliances, such as coffee machines and fruit juicers. Aesthetically, it could mean adding a brighter colour scheme to a property to make it jump out the page on a booking platform
London’s 90 Day Rule The 90-day rule for Short Term Let accommodation in London refers to a regulation introduced by the Greater London Authority in 2015. The rule limits the amount of time that a property in Greater London can be rented out as Short Term Let for 90 days per calendar year.
Whether you intend to manage the property yourself or use a management company, one thing you must ensure is good customer service. This includes responding to any queries or issues guests have promptly. Ensuring check in instructions are clear can also help avoid a frustrated guest on arrival. All of this is important to help encourage more positive reviews. Reviews can make all the difference in being able to dictate a higher nightly rate, as a guest is more likely to pay more if they trust they are staying in a good place.
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SUMMARY
Although there are many factors to consider when investing in a short term let property, the benefits are there to be seen. Increased income in the short term and increased property growth in the long term mean that this particular rental model has all areas covered for an investor looking for lucrative returns with minimal fuss.
We hope this summarised brochure of information has helped. If you would like further information or have any questions, feel free to get in touch with our team at any time, as our phone lines are available around the clock, 24/7.
Residential Estates, Kinnerton House, Bell Meadow, Chester, CH4 9EP 01244 343 355