Yield on Holiday Lets

[nkyme01]

Hi all

Given what look like attractive property prices now I was thinking of buying something like a 2 bed apartment to let to holiday makers. Being a total newbie at this I was hoping some of the wiser experienced ones of you might be able to help me with some of my questions. The area I know best is Javea/Denia/Calpe so was considering buying there.

Questions I had to start with are:
1. What sort of property tends to generate the best rental yield - I was thinking a 2 bed apartment suitable for a family of 4?
2. What sort of occupancy rate could I expect through the year - what sort of yield would that translate to on current prices?
3. Given that I am in the UK and it wouldn't be so easy for me to manage it from here, what sort of property agency would be best at managing the property? Would do they typically charge?
4. What local taxes would I incur on the property and on the rent I would generate?

What else should I be thinking about?

Many thanks in advance for any replies - any advice would be much appreciated.


Karl

 

[Carol444]

Let yields

Hi Karl,

I have a 2 bedroomed apartment in Calpe which I rent out so can answer your questions.

1) The best rental yield is definitely a 2 bedroomed apartment, this can hold a family of 4 but you would be wise to put in a fold-up bed in the living room as I get families of 5 staying in my place usually. Larger families (can include a grand parent or 3 children) tend to find holidays more expensive, so will be more likely to rent the place.

2) Occupancy in most places is rather low at the moment and people tend to put prices right up in August school holidays to account for it. My place is occupied throughout the year with only 2 or 3 weeks free, but I have had my place for 11 years now and have worked hard at building up a list of clients who go back year after year, so I have no advertising costs etc. which you will have to factor into things.
Having said that, when I sell my place later on in the year I will be selling the new owner my client list if they want to rent it out, so perhaps you can contact the owner of the place you eventually buy and ask if they rent it out and have a list of clients they can sell you. That way you will save all the work involved in building up your client base.

3) I manage my own rentals with ease so you should be able to as well, no need to involve a property agency, that would only create more cost.

4) Taxes on the rent are dependant on how much you earn in your normal UK job. Other bills are cleaning and laundry for renters (about £35 a time),Council Tax, electricity, gas and water bills, gas certificate, Apartment Building Maintenance fees, a fee for the refuse bins.

My advice would be not to go into the Spanish property rental business thinking you will make a fortune. The way to look at it is to think the rental will pay all the yearly bills for the apartment, plus a holiday (flights etc.) for you and your partner out there at least once a year, and at the end of it you will have a property that you can sell and will at least get your money back (or make money on it as the prices are reasonable at the moment, but should start to rise from next year onwards).

Hope this is a help to you, Carol

 

[nkyme01]

Hi Carol

Many thanks for your reply and the benefit of your experience.

I looked on owners direct and saw that occupancy rates were very variable between one apartment and another, often with no apparent reason. I saw some very attractive apartments at very reasonable rents with hardly any bookings! Obviously with such low visibility of income at this time of the year that is very disconcerting. Do you find that a lot of people book late?

Why do you think bookings are so low this year?

Presumably you're in the UK. How do you manage changeovers/repairs etc without an agent there? How do most people arrange for these things?

I was hoping to get a yield on a property over 7%. So if a 2 bed flat cost me £100k then I was looking to get £7k in income after costs - taxes, running costs etc. Is this realistic? You seem to suggest holiday homes aren't that profitable. Would the Canary Islands be a better idea where you potentially have a longer season?

On taxes you say liability arises in UK not Spain. But I thought the Spanish tax authorities were trying to chase landlords for tax?

Many thanks again for any help.

Karl

 

[totallyproperty]

Hi

Some great points raised in this thread and all very useful.

One point which springs to mind for me, and has been mentioned above, is the fact that while you may be able to earn a good yield on your property, if it is empty for a large part of the year then this could devastate your finances. Is it maybe better to go for lower rental yields in areas where your property will be more heavily utilised for a larger part of the year?

Regards,


Mark

 

[Carol444]

Rentals

Hi Karl,

This is not a particularly bad year for bookings, the reason there are not many bookings in the apartments you have seen is because they have not built up enough of a client base to generate bookings.

When I first started out I didn't have any bookings either, I was lucky enough that my job took me to many different companies in the UK and I advertised my apartment on the social websites of all of them so I have a large client base. Even so, it took about 4 years before I had enough to generate all-year-round bookings. So it takes patience and a lot of advertising.

Mark makes a good point when he says it is better financially to have all year round rental than just to have rentals coming in for a few months. I certainly went down the route of having lower weekly rents to get people in all the time. I always send out my prices at the end of October and the weeks are usually about 80 percent booked within 2 weeks, with the rest being booked by the end of January.

You can find someone to manage your apartment by asking around in the place where you are going to buy the apartment. Normally people who work behind a bar would know people who manage apartments. I have a person who cleans and looks after my apartment, and also sorts out any problems when I am not there. I phone him and let him know the dates people are arriving.

There are occasions when a person has to arrive, leave their cases in the apartment, then go for a wander around or a meal for an hour until the cleaning is finished. Once or twice a person is still there for a couple of hours when a new person arrives, it only happens rarely, and the people involved are fine with it, either one set goes out until the other has gone, or they just spend some time swapping notes on restaurants etc.

My people are very nice, and tend to leave books and notes and buy a few new things for the apartment occasionally. It makes a difference having known or worked with the person who is renting the place I believe. I had a few problems with the people sent by the agency who rented it out for me for the first year, some thefts etc. Which is one reason why I decided to take the renting over myself.

I think you may be better off in the Canaries (though I have no knowledge of the Canaries so could be totally wrong) because I think you are out on your figures. You won't get a 2-bedroomed apartment by the sea for £100K, you would probably get an apartment inland for that amount or a 1 bedroomed apartment by the sea. Inland apartments will be very difficult to rent out. Also, I think £7,000 profit a year is way too optimistic, even £3,000 after taxes and other bills have been removed would be too much. If you were to spend £80,000 on a 1-bed apartment in the UK, and you were to rent it out you would only make around £170 a month after standard taxes and other bills have been removed. That's around £2000 profit a year. You would make a lot less than that on renting abroad in the first few years while you are building up your client database. And probably wouldn't even break even in the first couple of years of rental.

As I said before, you are better off looking at it as a property investment rather than a money making scheme.

regards,

Carol