For many owners, the dream lifestyle of having a primary home as their necessary base and a secondary place in the sun wouldn’t be possible without the safety net of the income they earn by renting to travellers. Some offset a significant portion of their expenses, making a holiday home an affordable luxury. One third of our advertisers break even on their properties. For a minority the profits finance a vital secondary income, which covers important expenses such as their children’s education, or retirement funds.
If you wish to pay all or some of your expenses it is important to work out what you’ll need to cover.
The typical costs of running a holiday rental business include: Your
monthly mortgage payments (including interest, taxes & insurance) Insurance
(building and liability) Complex
, or grounds fees (if you own an apartment or complex) Maintenance
, repairs and redecorating Housekeeping
, or housekeeper’s fees Advertising
and marketing costs
The cost of your mortgage rate should be fixed, so it’s easy to determine what your annual expenses should be (e.g. x12 your monthly payments). Only the final three costs are expenses generated by turning your second home into a holiday rental. Maintenance and repairs would still need to be paid whether you rent to travellers or not, but it’s likely you will need to spend more if you have paying guests in mind. The cost of marketing is relatively low, so the main extra expense is housekeeping.
If you use a property manager you will also have to pay:
Management charges (usually in the form of commission)
Some property management companies might charge extra cleaning fees
Have a read of Setting your Rental Rates
, and see our Rental Income Calculator to determine what your property could realistically rent for.
There is a simple formula that can be used to break even on your mortgage and holiday home expenses
The average holiday destination (coastal summer destination) experiences twelve peak weeks per year (mid June to mid September). These are the most popular weeks for travellers to go on holiday, so you can charge them higher rental rates. If your peak season rental rate covers one monthly mortgage payment then you’ll need to rent twelve peak season weeks to cover your mortgage. Luckily these are the weeks that are most in demand, so it will be easier to book travellers.
On top of this you need to rent out your home during the off peak season to cover the additional costs. It’s a good idea to estimate how much you’ll need to pay, and then work out how many off peak weeks you’ll need to rent to cover these.
Of course formulas are a useful starting point, but every holiday rental experience is different, so it’s important to look at your individual circumstances.
I usually reserve some peak weeks for holidays with my friends and family, does this mean I can’t break even?
Even if you want to use your holiday home yourself, you can still break even.
If you bought a holiday property in a "sunshine" destination then it makes sense that you’d want to soak up some of the sun yourself. In fact the average second home owner who advertises on HomeAway.co.uk reserves the property for their own personal use, or for their friends and families, for seventeen weeks a year. Even if you wish to use it during peak times there are ways and means of breaking even.
Some homeowners are lucky enough to be able to charge rental rates that far exceed their mortgages. This is especially true of those who own in “in demand” tourist areas where holiday homes are sought after. Or those who bought their holiday home before the overseas property boom, and rental rates have risen dramatically since that time. If you fall into this category then you are in the lucky camp.
Also, remember that many holiday properties in certain locations will rent at peak season rates for longer. Holiday homes in long haul "winter sun" destinations tend to get more bookings off season, and chic city pads are popular all year round.
If you are in a popular tourist area some peak season weeks will rent for more than others. In many areas it’s not uncommon to charge different rental rates within the peak season. For example if you own in an area that’s popular with families then you can charge even more during the school summer holidays. Empty nesters can compromise by only travelling outside of the school holidays, but still making it for the sun season. A similar principle applies to anyone with a property that will be in high demand for other periods of the year. Inland countryside properties are highly sought after during the Christmas period., and owners will often raise their rental rates anywhere from x2 to x4 of their usual peak season rate. Or maybe there’s an annual festival or event in your area that brings the tourist’s in? Either way, many owners take advantage of these weeks to make up for the weeks they don’t have bookings.
A week’s peak season rental rate after tax won’t cover a month of my mortgage, what can I do?
Unfortunately for a small minority of owners things are more difficult. These tend to be owners who have properties in highly competitive areas. This sometimes happens in an area where too many people bought a property, often as a financial investment. The area, for whatever reason, doesn’t attract enough tourists for the homeowners to book, so they are forced to lower their rates in the hopes of attracting customers. Please note:
An area with a lot of holiday rentals on offer isn’t usually one where it’s hard to get bookings. the destinations that get the most enquiries on HomeAway UK have the largest number of holiday homes. Competitive areas are ones that don’t fit into basic business model of supply and demand.
If you fall into this category it is still possible to cover at least a significant proportion of your mortgage payments and expenses, but you might have to work a bit harder to do so.
If a week’s high season rent doesn’t cover your monthly mortgage payments, the first thing you need to do is follow this formula
Take your weekly peak season rental rate. Times this number by twelve and you should have worked out what you’ll make if you’re fully booked for your peak season. Take whatever is left over and divide it by the amount of money you’ll make from an off season weekly booking. The number you get will be the extra number of weeks you’ll need to cover to make your mortgage payments. Then add the additional weeks you’ll need to cover your other holiday home expenses.
Unfortunately if your property is in a competitive area, not only are you unlikely to cover the mortgage payment with a week’s rent, but your chances of booking off season will also be slimmer.
The best way of determining how many weeks you’re likely to book is to visit the portal sites and look at the availability calendars of properties which are comparable to yours. The busiest periods for traveller bookings tend to come in two waves, the first being after Christmas to early spring time, and the second being early summer in a last minute rush. It’s well worth looking at how these properties are doing during these periods, as well as checking whether they are booked up for peak season before the holiday period starts. This should give you a realistic indication of the number of bookings you can expect. Please note:
50% of the calendars on both HomeAway UK sites are not fully updated. Many owners don’t fill in the days they are booked because they think it means travellers are more likely to make an enquiry if they see full availability. This is a practice we highly discourage
for the sake of our owners and travellers.
Even if you are unable to cover all of your expenses, it’s well worth renting out your holiday home to offset some of the costs. The majority of owners who don’t break even offset a significant amount of expenses. The price of turning your second home into a holiday rentals business is a relatively small fraction of the costs of having a holiday home in the first place. So the rent by owner process is still well worth it.
Statistical information taken from:
HomeAway.co.uk's Market Place Report, First Quarter 2010-06-01
Savills International Research: UK Second Homes Overseas, 2009
Or see our online Press Kit for more information on owning and renting out a holiday home, whether it’s a UK or overseas property.
© Copyright Christine Karpinski, 2006
Copyright HomeAway.co.uk, June 2010