Could your portfolio generate more?

Living by the Coast I have been thoroughly enjoying the recent spell of sunshine and seeing all the visitors who are heading to our town to enjoy the beach and all the East Kent Coast has to offer.

We have recently seen the reopening of a theme park in our area and have subsequently seen a sharp upturn in visitor numbers. The age of the “Staycation” appears to be with us.

I have therefore been turning my attention to the holiday letting sector and considering using sites such as AirBNB to try and increase the income on some of my portfolio.

Indeed many of you may have considered such a move. There are reportedly around 750,000 hosts worldwide who use this site to attract some of the 500,000 nightly visits which are arranged.

I have spoken to a number of investors in my area who are trialing holiday lets and the response is very positive. A 1 bedroom flat previously let on a long term basis at £450 per month has generated an average of £2600 per month for the last three months. These types of numbers appear to be the norm rather than being in any way exceptional. Whilst I accept that in my area these figures will tail off  during the Winter there are likely towns in the UK with year round demand.

Last year there were 9 Million Brits who took some short term rental accommodation in the UK and 9% of the 31 million visitors from overseas stayed in short term rental accommodation. Indeed it is suggested that demand is likely to increase with one report suggesting these figures will further increase by 6% by 2018. The average stay is between 4 and 7 nights with 25% of bookings being for in excess of a week.

I accept there are downsides such as the requirement for the mortgage lender to agree with your plans, the need for the landlord to pay the council tax and most likely an enhanced building insurance premium. Further, I accept you will have to arrange for visitors to be checked in and out (although a key safe at the property would probably take care of this) and to ensure the property is regularly cleaned for each new visitor.  There are upsides too. Aside from the potential and significant increase in income, through prepayment you will not experience arrears. Indeed AirBNB make payment to the landlord within 24 hors of the visitor arriving.  It will also be unlikely that you will need to incur costs in evicting unwanted guests in the way you might with a non paying tenant. Additionally, you will most likely still be able to use the property yourself during void periods should you wish.

You are likely to meet a number of interesting people from holiday makers, business people, those on short term work contracts and those simply visiting friends in the area.

My real concern is that there could be an explosion in the number of people who may start to do holiday lets, particularly  once interest rates start to climb back up and this may saturate the market place. It is reported this market sector has grown by 20% in the last five years and shows little sign of slowing down. Notwithstanding I think you should have a year or two of good demand and superb returns and the costs involved in getting your property ready for a short term visitor remain relatively modest.

It seems the real pull for this type of accommodation is where you can house a number of people. On that basis the total accommodation cost for them can be more cost effective than booking into a hotel. Indeed it seems that there is a growing demand in the UK from business people who prefer homely accommodation rather than a hotel not least as it allows them space to get together away from the office.

It may therefore be a useful exercise to have a close look at your portfolio and see which may be suited to such a venture. Try it with one and see how you go.

I am currently getting a two bedroom apartment ready for my first foray into this market place. A sofa bed will mean the property can be available for up to six guests. I will be keeping detailed records of costs and expenditure and rental income to assess to what extent I can improve on the long term rental income that the property has previously generated. If it works I may consider repeating the process with other properties.

If you don’t have a suitable property but are considering in investing in one then I would suggest you look at towns where there is significant visitor demand and a low supply of hotel accommodation. Look for property which is well located in terms of train stations and other transport connections yet well positioned for the facilities and amenities that your guests are likely to be coming for. Bear in mind these are probably also the search criteria you would look for when investing in a vanilla buy to let so you can proceed with confidence that you do have a Plan B in mind!

For all of us I am hopeful that the income this venture will generate will last far longer than the sunshine!