Thursday, 27 February 2020

Life is not a bed of roses - the economics providing a rental Holiday Cottage

We chose to put part of our retirement savings into property investment. Comparing with the other investments we took out at the same time via our financial advisor, we'd be looking at a 54% gain on the capital investment. Our holiday cottage, whilst providing some protection against financial market risks, has not yet broken even after seven years.

Here's the typical average weekly costs that we face in operating the cottage:


Attending site travel cost£12.80
Internet & phone£4.90
Electricity & gas£14.77
Water & sewer£3.65
Insurance£5.08
Trade waste£3.81
Supplies£1.70
Milk n biscuits (greeting)£2.00
TV licence£2.96
Laundry£1.60
Ironing & cleaning£10.13
Repairs & Maintenance£25.27
Admin/accountant£5.54
VAT on agency fee£4.83
£99.04week
£14.15day


These figures are taken directly from our accounting system, and are auditable for tax purposes. If the guests fail to put out the rubbish for collection, we have to put in an extra trip to the cottage the following week, at a cost of £6.00, to put out the bags/bin make sure the rubbish, for the previous week, is collected.

There are other cost/loss of income amounts to be considered, that we don't currently charge to the cottage project:

Notional Interest on Capital£91.35
Business Rates£18.46
Man hours/Minimum wage£34.88
Furniture/White goods replacement£11.54
£156.23week
£22.32day

The notional interest is the income we'd have received if we just invested the capital amount in the financial markets.  Business Rates are what we'd have to pay for the Holiday Cottage on assessment by the local authority. Fortunately we have a Government Exemption on Business Rates, but that could easily cease.  Man Hours is the amount of time we spend each week dealing with the cottage, if nothing goes wrong and we have perfect guests. Currently we do not charge for those man hours. Furniture and white goods have to be replaced frequently, but at the moment we treat those as an asset rather than an operational cost.

Over the same period, the average amount  we received is:

Average take rental fees received£120.63Week
£17.23Day

So ignoring the "other costs" we take about £3/day as "profits" in exchange for a lot of worry.  If we properly factored in the "other costs" as if we were a normal business it is evident that we subsidise our guests to the tune of £19/day.

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