A new survey has come to light showing that holiday lettings generate higher returns than most other property assets, including buy-to-let – but having long-term tenants can provide some major advantages.
The yields generated by letting out a holiday home were 1.1 percentage points higher than those made by buy-to-let investors over the past year, according to research from Second Estates, topping the list of all other major real estate investments in terms of returns.
According to the statistics, the average owner of a holiday letting made £563 a week last year, while average buy-to-let landlords made £191, which is nearly three times more income even when considering factors such as off-season prices and occupancy.
Average net yields reached 6.1% for holiday homes over the last 12 months, followed by student accommodation which saw net yields of 5.25% on average. With forecasts showing an estimated total average return of 9.3% over the next five years for holiday lettings, the asset class is one of the strongest in the market.
Three top benefits of long-term tenants
As a general rule, property investment should be seen as a long-term project, rather than a way of making a lot of money in a short space of time. While the yields of holiday lettings may be enticing, there are a number of other factors to take into account that will affect the investment, and could mean that many investors are better off sticking with buy-to-let.
- One major consideration is void periods. While some holiday homes may prove popular all year round, the majority of those in the UK will be very seasonal, and may not even be filled during high season if they are not competitively priced and do not offer all the necessary amenities. By contrast, most tenants sign up to stay in a property for 12 months, meaning that as the tenancy draws to a close, the landlord can advertise early and minimise the length of time the property sits empty.
- Advertising is another benefit to buy-to-let. While a holiday home will need to be advertised continuously, buy-to-lets only need to be advertised when a new tenant is needed, and the cost of this could be set to fall as more people are beginning to opt for using cheaper online platforms as opposed to traditional agents.
- Another huge draw towards long-term letting is that tenancies are protected by credit checks and referencing. Furthermore, many landlords will actually get to know their tenants personally, and therefore build up a level of trust. Holiday lets, on the other hand, involve numerous different people coming and going from the property, who may or may not have been vetted, and this carries the increased risk of damage to the home needing to be repaired, as well as the addition of regular cleaning costs and checks.
In conclusion, when looking at yields in isolation, according to the latest figures, holiday lettings are a great choice for investors. However, taking everything into consideration, many property investors may still be wiser to stick to the tried and tested buy-to-let market.