Owning a holiday let can be financially rewarding, but it also comes with significant costs.
To make informed decisions, it’s important to understand both the initial investment and ongoing expenses involved in managing a holiday rental property.
1. Initial Costs
The first major outlay is the purchase of the property (if applicable), which varies significantly based on location, size, and market demand. Rural or coastal properties, especially in tourist-heavy regions, may carry a premium. Additional costs include:
Stamp Duty: Stamp duty is one of those things people tend not to factor in when looking at purchasing a property. In Wales, stamp duty is known as ‘Land Transaction Tax’ and the rates paid vary depending on the price and type of property.
Renovation and Furnishing: Ensuring the property is ready for guests involves investing in quality furniture, appliances, and décor. Furnishing can range between £5,000 and £30,000, depending on the level of luxury provided. Other essential services like Wi-Fi installation and safety equipment (fire alarms, carbon monoxide detectors) also need to be factored in.
2. Ongoing Expenses
After the initial setup, holiday lets have several ongoing costs that you must manage to ensure profitability:
Cleaning and laundry: Each guest changeover requires cleaning and fresh linen. Depending on the size of the property and location, cleaning costs can vary, as the bigger the property, the more there is to clean.On average costs can vary anywhere between £80 for a 1-bedroom property to £180 for a 5-bedroom property, this cost typically does not include the linen, so you would to ensure any quote you receive includes this if you require them to take care of your linen. As part of our managed service offering, Menai Holidays can connect you to our trusted network of suppliers. From dealing with housekeepers to assembling welcome packs, Menai can do all of the work for you as part of our Managed Service.
Maintenance and Repairs: Regular upkeep is essential to keep the property appealing to guests reduces the risks of complaints and keeps guests happy. This includes minor repairs, repainting, and general wear-and-tear fixes.
Annual compliance checks: You as a holiday let owner are responsible for and should ensure annual compliance checks take place to ensure your property meets specific legal, safety, and operational standards. These checks are essential to maintain safety, avoid legal issues, and ensure a smooth guest experience.
Key checks include: –
- Gas safety inspections by a registered engineer, ensuring all gas appliances are safe and compliant.
- Electrical systems should also be tested regularly, and Portable Appliance Testing (PAT) is recommended for any electrical items provided for guests.
- Fire safety is crucial, so smoke alarms, fire extinguishers, and emergency exits must be checked to comply with fire regulations. Additionally, holiday lets should have an up-to-date
Property owners should also keep on top of their Energy Performance Certificate (EPC) and carry out an Electrical Installation Condition Report every 5 years. Read more about the health and safety obligations relating to holiday letting our blog.
Utilities: Unlike long-term rentals, holiday let owners are responsible for covering utility bills, including electricity, water, gas, and Wi-Fi. Seasonal occupancy fluctuations mean costs will vary, but monthly utility bills can average between £100 and £250, especially in peak seasons when usage is at its peak.
Don’t forget to account for any other additional services you may look to provide such as the following: –
- Netflix/Prime/Sky subscriptions
Waste collection: As your holiday let will be operating as a business, you need to pay for trade waste collection so that it is collected more frequently. You can either do this via your local council or via a private waste collector. Costs range from as little £4. Our property services team will be able to guide you on this and as part of our managed services offering, we can also help support you with arranging and monitoring this for you.
Insurance: Specialist holiday let insurance is required to cover buildings and liability. A good insurance policy will cover potential damages caused by guests and public liability, with annual premiums ranging from £300 to £800 depending on the property and coverage. As a minimum, you must have coverage for up to £2 million on your policy. For more information, read our complete guide to holiday home insurance.
3. Marketing and Booking Fees
To attract guests, you’ll need to invest in marketing your property across platforms like Airbnb, Booking.com, or Vrbo, which typically charge commission fees ranging from 3% to 20% per booking. Additionally, you might consider investing in professional photography or creating a dedicated website to attract direct bookings.
Do take into consideration the time investment and knowledge needed to market your own holiday let effectively, our blog on holiday home advertising will give you a breakdown of everything you will need to consider when marketing your property.
4. Taxes
Holiday lets have distinct tax implications compared to standard rental properties. If your property qualifies as a Furnished Holiday Let (FHL), you may be eligible for tax advantages typically reserved for trading businesses. An FHL can include a house, cottage, apartment, suite of rooms, or even a caravan, provided it meets specific criteria. Below are key tax considerations you should be aware of::
- Council Tax or Business Rates: Depending on how often your property is let, it may qualify for business rates instead of council tax. In some cases, you may be eligible for small business rate relief.
- Income Tax: Income generated from your holiday let is taxable. However, holiday let properties also come with certain tax advantages, including the ability to claim expenses and capital allowances on items like furnishings.
- VAT: If your property’s turnover exceeds £85,000 annually, you may be required to register for VAT.
If you want to find out more about any of the above, take a look at our guide to holiday tax and business rates in Wales.
5. Management Costs
If you choose to outsource the management of your property, agencies can handle everything from bookings to maintenance. Agency commission costs can vary depending on the agency and the service you are looking for, make sure you do your research and compare value for money.
An agency such as Menai Holidays are here to take as much of the weight off your shoulders as you would like. If it is just the bookings and payments you would like us to deal with, no problem. If you would rather have no involvement with the running of the house at all, then our fully managed service could be perfect to ensure the successful running of your holiday let.
Running a successful holiday let requires a clear understanding of the costs involved. From upfront investments in property and furnishings to ongoing expenses like cleaning, maintenance, and utilities, careful financial planning is essential. By managing your holiday let effectively and staying on top of taxes and regulations, you can turn it into a profitable venture that offers long-term rewards.
