Monday 8 April 2019

Why do we do it?

Why do we provide a holiday cottage for rental? It is part of our investment for retirement. We didn't buy-to-let using a mortgage. We invested our own retirement savings to purchase the place and to then renovate it for rental. Ignoring the capital involved in the purchase the holiday home doesn't run at a profit yet. After five years the running and set up costs are still larger than the income received from the holiday letting company.

If we'd taken the same money that we spent on purchasing the building and renovating the cottage, and instead handed it to our financial advisor to invest in a fund over the same period, we'd be approximately £40,000 in profit.  However the problem with financial investments is the risk. Banks and share markets can do crazy things and that £40K profit could be wiped out overnight. That sad thing is that property is a more stable investment. It is called investment portfolio diversification.

If however I'd put the same money into Amazon shares at the start of the period we'd be showing a profit of £623,000.  It just goes to show you can't always get it right! You cannot predict the risk.

Our major costs are:

  • 20% of booking fee goes to the agency; and we pay VAT on the remainder passed to us.
  • Power, water utilities, Internet Broadband (business contract),insurance - we still have to pay those even when the place is empty;
  • Laundry costs;
  • Rates;
  • TV Licence;
  • Replacement of broken and stolen white goods;
  • Replacement central heating;
  • Decorating bills and maintenance;
  • Furniture repair and renewal;
  • Tax accounting service £20/month
  • Kitchen towels at £2.75 per week;
  • Laundry and cleaning costs.

So if someone tells us the place is too expensive, we agree but we are not thinking of the booking rates paid by the guests! I worked out that we in effect subsidise our guests to the tune of £30 for each booking night. Add the cost to that of 2-3 man hours work from us for each turnaround for a new guest.

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