Hayle properties

2022 Residential and Holiday Let comparisons

2 years ago I wrote an article, comparing the residential and holiday let rental incomes and cost comparisons in Hayle. So much has happened in the housing market since then, that now felt a good time to take another look at these two property investment options.

The Covid effect on the Hayle, Penzance and St Ives property market has been seismic. Prices surged by around 15% in just 12 months for all properties in the area. This was driven by many factors such as:

Issues with Urban living in a pandemic

Urban living when all shops, bars, restaurants and social venues are open, is fabulous but when they all close down, the lifestyle proved to be claustrophobic for so many. Suddenly, owning a property in a UK rural or coastal beauty spot became the new Holy Grail.

Growth in remote working Technology

The ability, thanks to greater technological advances, for people to be able to work from home. In fact in a lot of cases, employees were being forced to do so.

Lack of ability to take foreign holidays

What appeared to be an impossible dream of ever being able to holiday abroad again at the height of the pandemic, meant that everyone, regardless of their preferred holiday destinations, chose the popular UK tourist hotspots.

These factors and many others meant that chilled West Cornwall was hit by a tidal wave of new property owners and holidaymakers. This, combined with the lack of stock meant that bidding wars broke out and properties were going for tens of thousands over the asking price. It was scary being in the eye of that particular storm.

So now the dust has settled, how does the residential v’s holiday property rental income compare in 2022

For simplicity, I’ve based all my findings on a typical 2 bedroom terrace house in Hayle, Cornwall, with a garden and walking distance to the beach. I’ve worked on a purchase price of £230,000 (2 years ago I used £170,000 as a guide price).

Holiday let Rental Income

This is what I said in 2020:

‘Most agencies will initially quote income for full occupancy. When in reality the average is around 28 weeks, with start-ups achieving around 15 weeks initially.  So I’ve based my calculation on the average of 28 weeks, with peak weeks achieving £1,000 and a low season weeks achieving £350 then variable prices in between’.

In 2022, from what I’m hearing and seeing locally, some new holiday let owners are struggling to achieve even 15 weeks. This is mainly down to the oversaturation of holiday let properties in the area and the opening up of foreign holidays once more. Most owners have filled July and August weeks but they struggled earlier in the season and are light for the autumn.

I’ve therefore, factored down the average to a more realistic 22 weeks of occupancy, with peak weeks achieving £1,100, low season achieving £425 and an average of £700 for mid season weeks. Holiday let rental prices have gone up in the past couple of years, although in light of market saturation, this may not be a continuing trend.

Based on these figures, you would achieve a gross income of around: £18,540

Annual Running Costs for a Holiday Let property

Agency fees

These can be as much as 50%, with hidden costs but most are around 20%, so this what I’ve worked on = £3,708 p.a.

You can reduce costs here by managing the property yourself. However, it takes a lot of work to secure a decent number of weeks. If you do it yourself, you will need to use on-line booking portals such as bookings.com or Airbnb. These have an overly complicated charging structures and cancellation policies.  You will also need your own website and probably your own Facebook page.

Safety checks

Gas safety check: If you have gas to the property you will be required to have an annual gas safety check this would be around £150.00

You may also want to consider annual or bi-annual PAT testing and an electrical condition report every 5 years.  Although these are not currently a legal requirement for holiday lets.

Maintenance

There are running repairs and inventory replacements to keep on top of throughout the year.  Therefore, a rule of thumb guide is to put aside a 10% slush fund to allow for these eventualities.  If you don’t use all the money in one year, it can be put towards larger costs such as new carpets in a future year.

Repairs and Maintenance costs = £1,854

Cleaning and laundry costs

The costs for cleaning and laundry has increased tremendously over the past couple of years. 2 years ago I said ‘Allow a minimum of £100 per changeover (more if you provide towels and beach towels)’. However, due to a huge shortage of good cleaners and the more intense cleaning protocols required, you’ll now need to allow at least £150 per changeover.

Cleaning and laundry costs = £3,300

Utilities

This is an area that’s hit holiday let owners the hardest. Thankfully we’ve had a hot summer thus far but I know of quite a number of owners who are considering closing up for a few months over the winter, due to these soaring costs. Especially as there’s a lot of covert car battery charging going on, which is adding to their costs.

The estimated energy cost for an average house is now predicted to be £300 pcm = £3,600 p.a

This is a £220 pcm increase from 2020!

Council tax

£1,640

Total annual running costs: £14,252.

In 2020 my cost calculation was £10,115! The biggest cost increases since then have been cleaning and energy. This coupled with a reduction in weeks let has had a huge impact on holiday let investment income for 2022.

Net Income for a Holiday Let Property in Hayle

£18,540 – £14,252  =  £4,288 cash profit

Holiday let return on investment (of £230,000): £1.86% (in 2020 this was an estimated 3.96%)

Residential Let Income

Currently a 2 bedroom Terrace house in Hayle would now achieve around £895 pcm.

Your gross annual income would be: £10,740

Annual Running Costs for a Residential Let Property

Agency Management Fees

12% = £1,288

Annual Gas safety check. This is a legal requirement if you have gas to the property and must be carried out annually: £150.00

You would also have electrical safety certification cost once every 5 years and an EPC once every 10 years. 

Repairs and Maintenance

You will rarely have the level of ongoing costs that you’d have with a holiday let but there could be some and you may also have times when your property is empty between lets.  Therefore, its also wise to budget around 10% of your annual income to cover for such eventualities.

Repairs and Maintenance Costs = £1,074

Utilities

None. These are paid for by the tenant

Council tax

None, this is paid for by the tenant

Total annual running costs: £2,512

Net income for a Residential Let Property in Hayle

£10,740 – £2,512 = £8,228 cash profit

Residential Let Rental income- return on investment (of £230,000)= 3.57% (in 2020, I estimate 4.14%)

Summary

As you can see, the % return on investment has decreased for both investments but the greatest drop is in the the holiday let market.

This makes me feel that these reduced margins might deter investors. This in turn, could redress the balance of supply and demand and thus create a downward trajectory of prices. What do you think?

Further reading

I haven’t yet reviewed the latest set up costs but you can take a look at my 2020 article as a general guide: https://hayle-property-news.co.uk/compare-set-up-costs-for-holiday-lets-with-residential-lets/

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