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Short-Term Letting: A Guide For Landlords and Investors

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    Short-Term Letting - Overview

    With the rapid rise of accessible, easy-to-use online booking platforms such as Airbnb, UK homeowners have been entering the short-term letting market in increasing numbers over the last few years.

    As hotels become more expensive and demand for short-term rental accommodation continues to exceed supply in the UK’s largest cities, being able to offer short lets at affordable rates in prime locations can be a highly lucrative earner for property owners.

    As well as being a popular destination for international tourists, the UK has seen significant growth in the number of natives taking ‘staycations’ across the country in the years following the Covid pandemic.

    In 2021 for instance, it was estimated that around 80% of UK residents took a holiday on the island when international travel was still largely restricted.

    Although things have pretty much returned to previous norms, this trend is still serving to boost the domestic tourism sector. Along with international visitors and business travellers, this has created a huge market for short-term lettings across the country making it one of the best buy-to-let investment strategies.

    Here we’ll take you through the ins and outs of short-term letting, what it means, what it entails and what you can expect to earn from a short-term let property in the UK today.

    The different types of short-term lets, as well as the new rules for short-term rentals, will also be considered in order to give your short-term lettings business the best possible start.

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    What Is a Short-Term Let?

    First things first, what is it?

    It may seem self-explanatory and in many ways it is, but there is often a degree of confusion as to exactly what is considered short-term letting.

    In the majority of cases, short-term letting is when a property is rented out for a period of less than 90 nights. However, short lets typically last anywhere from a couple of nights to a month.

    Incidentally, until platforms like Airbnb came along, short-term rentals usually didn’t count for anything less than weeks or months.

    But now, last-minute bookings of one or two-night stays – made easily through the company’s website or mobile app – have transformed the industry.

    Perhaps the main difference between this and having a long-term tenant is that there can be significant variations in what is classified as a ‘short stay’.

    For instance, people going for a two-night city break or a three-week holiday abroad all fall under the ‘short-stay’ umbrella, expanding the potential customer base for property owners.

    This indicates just how broad the market has become and how lucrative a short-term rental property can be if managed and marketed correctly.

    Due to the nature of what people are availing of the service for (usually a holiday or travelling for a particular event), short-term tenants are generally prepared to pay significantly more per night than what will be earned from a long-term tenancy.

    Either way, short-term lettings mean hosting tenants for short periods of time and have the potential to earn you a lot of extra income – that’s all you really need to know for now.

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    Different Types of Property Investment

    Types of Short-Term Rental Property

    As well as the difference in the duration of tenant stays, short-term rental properties will typically differ in terms of what they offer residents from those that have a long-term tenancy agreement in place.

    Now, the variation in property on offer on Airbnb is well, huge. From a cosy coastal treehouse in rural Ireland to a stylish city apartment on London’s Southbank, you will find whatever it is you might be looking for in terms of short-term let accommodation.

    But that’s not quite what I’m getting at.

    If you’re thinking of entering the short-term letting market, it’s essential to know at least what the basic requirements of a prospective tenant might be, which also falls under the what is a short-term let question.

    In some cases, isolation, a break from technology and all forms of communication with the contemporary world are exactly what people are looking for, and that’s great if you think you have the land/space or the ideal property to provide that for them.

    But for those hoping to invest in a buy-to-let property in a popular UK city, ensuring that you can offer things like internet access, television, self-catering facilities and washing utilities (included in the nightly rate) are often key to the success of your short-term letting business.

    One way to do this is by investing in a serviced apartment, of which there are now growing numbers across popular UK cities.

    Serviced Apartments

    Put simply, serviced apartments offer the comfort, privacy and facilities characteristic of a long-term rental property but in a hotel-like setting that’s ideal for short lets.

    Generally, a serviced apartment is a fully-furnished property that provides tenants with a little more independence than an average hotel room, as they’ll have the space and facilities to cater for themselves if they wish.

    A standard such property will consist of 1-2 bedrooms, at least one bathroom, a functioning kitchen, living area and will usually include onsite parking spaces for residents.

    If the property is part of a larger development, tenants may also have access to further leisure facilities such as gyms, swimming pools and spas, often accessible for a small extra fee.

    This makes serviced apartments ideal as holiday lettings as residents can enjoy a relaxing hotel-like experience while benefitting from the comfort and space of their own home away from home.

    From an investment perspective, purchasing a property that’s part of a wider development in a prime location is a highly lucrative and secure investment strategy as tenant demand is not something you will have to worry about.

    Being able to offer potential tenants added perks like those listed above further adds to the value of the overall investment as it will allow you to charge a higher (nightly) rate.

    For further information on serviced accommodation, check out our blog here.

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    Investing in a Short-Term Let UK

    So how exactly do you go about investing in short-term lettings UK?

    Importantly, there are a number of ways to invest in a short-term rental property that can make the endeavour more affordable and maximise its capital growth potential.

    One such strategy is investing in off-plan property, which means purchasing a unit in a property while it’s still in construction.

    While this might mean you have to wait slightly longer before making a return, investing off-plan will usually enable you to pay for the property in stages, making it much more financially manageable.

    Additionally, based on current UK property price growth predictions, if you purchase a property now, it will likely have increased in value by the time it’s complete and ready for tenants, creating an excellent capital growth opportunity!

    In any case, there are a number of things that new hosts or landlords should be aware of prior to investing in property for short-term lettings.

    These include:

    • Planning Permission
    • Short-Term Rental Law UK
    • Purchasing a Short-Term Rental Property
    • Potential Return from Short-Term Lettings

    Planning Permission

    For potential investors interested in short-term lettings UK, planning permission regarding letting out property for short periods is one of the most common queries.

    In simple terms, you do need planning permission if you want to rent out your property for short lets that together amount to more than 90 days per year.

    If you are not required to pay council tax on the property in question, then you will also need planning permission if you have any intention of renting it out.

    Either way, ensure that you have obtained the required permissions from the council or relevant local authorities in your area before advertising the property for short lets, as regulations can vary from place to place.

    Short-Term Rental Law UK

    Following the swift rise and recent transition within the short-term rental market, Governments across the world have had to adapt regulations to keep up with these fast-moving developments.

    Due to the speed of this shift in the rental accommodation sector, there have been concerns that regulations that hotel and B&B owners must abide by have not yet reached properties listed on platforms like Airbnb. Therefore, governments have been developing new ways to better regulate and control areas of the market.

    This has sparked some recent changes to UK law, leading to a number of new rules for short-term rentals that prospective landlords and investors should be aware of. These are:

    • The Deregulation Act
      The Short-Term Licensing Scheme
      The Registration Scheme for Short-Term Lets

    Read more about these rules in our next section.

    Deregulation Act

    One such example of a recent legislative change brought in by the UK Gov is the Deregulation Act of 2015.

    Before this particular act became law, homeowners in London were not allowed to rent out their properties for less than a period of three months without planning permission.

    Now, however, properties can be legally rented out for up to 90 days without the need to go through the process of applying for and obtaining planning permission.

    Short-Term Licensing Scheme

    In another recent development, the Scottish Government introduced the short-term let licence which is now a requirement for all owners of short-term rental properties.

    As the industry continues to expand, short-term lets licensing is likely to become more common. Therefore, it’s important to keep up to date with the latest announcements from the relevant licensing authorities whether you’re a prospective or existing host.

    For example, since the 1st of October 2022, landlords of all such properties in Scotland have been required to have one of the following four types of licences:

    • Home Sharing
    • Home Letting
    • Secondary Letting
    • Home Letting and Home Sharing

    Registration Scheme for Short-Term Lets

    In a similar attempt to monitor short-term lettings in England, the government has committed to introducing a registration scheme through the Levelling Up and Regeneration Bill (tabled in December 2022).

    Citing the need to develop a ‘responsible, high-quality and competitive short-term lets sector’, the thinking is that registering short-term lets would provide data enabling local authorities to have access to relevant information on properties being rented out in the locality.

    This also stems from a concern about the potentially damaging effects of the increase in short-term lets on local housing markets where a ‘hollowing out’ of communities and thus a rise in anti-social behaviour have been highlighted as possible problems.

    Inheritance

    Purchasing a Short-Term Rental Property

    As with any investment, knowing how you are going to finance the purchase of a short-term rental property is an essential starting point for any successful short-term let UK.

    Of course, if you plan on purchasing the property outright the process will be a lot more straightforward.

    However, if you need to take out a mortgage to finance the investment there are a few things to take into account first.

    One of the main considerations is the type of mortgage you will be able to get for a property that is to be rented out to short-term tenants.

    Typically, those looking to rent a property on a long-term basis will take out a traditional buy-to-let mortgage. But in order to legally accommodate short-term lettings UK property owners need to get a holiday let mortgage.

    These are pretty much the same as buy-to-let mortgages as borrowers will need to put down a large deposit (usually around 25% of the property’s value), but the property must then be rented out as a business.

    Additionally, for tax purposes, HMRC holds that the property must be available for rent at least 210 days a year, of which it needs to be occupied for at least 105 days.

    Potential Return from Short-Term Lettings

    So what can you expect to earn from regular short lets in the UK?

    Like all property investments, this will vary depending on things like location, property spec and the amount of time you dedicate to advertising it online.

    At present, the average monthly rent in the UK is £1,184 for properties with long-term tenants, generating an average annual rental income of £14,208.

    However, with a savvy investment strategy, owners of short-term rental properties stand to make much more!

    Are Short-Term Lets More Profitable?

    According to Airbtics for instance, the average daily rate for an Airbnb in the UK is around £175. This means that to match the average monthly rent for a long-term let in the UK, you would only need to rent out your property for 10 nights a month on Airbnb.

    Using these figures as a guide, to make an annual rental income of £20,000 through short-term lets, your property would only need to be occupied for 115 nights a year, which still meets HMRC’s minimum requirement.

    Of course, entering the short-stay accommodation market carries with it a certain degree of risk, the main one being the possibility of void periods when your property is unoccupied.

    To avoid this, location is key. So investing in a place with popular tourist attractions and that hosts regular events like concerts and high-profile football matches, for instance, is always a safe bet.

    Short-term letting can also require a significant amount of work in terms of the maintenance of the property, overseeing the booking process and responding quickly to any tenant issues.

    If this is a concern, however, enlisting the services of an experienced property management company is certainly something to keep in mind.

    So, are short-term or holiday lets a good investment?

    As outlined above, when managed, marketed and selected correctly, investing in a short-term serviced property can be a highly lucrative investment with the potential to bring high, long-term returns. All things considered, they are one of the best forms of buy-to-let investment in terms of generating a high rental income.

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      Top Short-Term Letting Investment

      Rice Works, Liverpool

      Consisting of 210 luxury serviced apartments and located among Liverpool’s most popular tourist attractions, this development is one of the most exciting prospects to enter the city’s buy-to-let market in recent years.

      Each property apartment within the building comes with C1 planning consent, the very same that is required of hotels and guesthouses which means they can all be legally rented through platforms like Airbnb and Booking.com.

      Offering a collection of top-of-the-range Manhattans, 1 and 2-bed apartments, prices start from £154,950 which is approximately 10% below market value for properties of a similar spec.

      With projected rental returns currently standing at 10-15%, comparable properties in similarly desirable locations have been known to generate up to £400/night on Airbnb.

      However, suppose you’re not entirely convinced about entering the short-term rental market yourself. In that case, the developer is offering a 7% assured NET rental return for the first two years, making this a hands-off and high-earning investment if you want it to be.

      Find out more about this versatile/lucrative investment opportunity and begin your short-term let investment in the UK with RWinvest.

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      Author

      Dale Barham

      Dale is a property content writer at RWinvest. Keeping a close eye on the UK property market, Dale helps our readers stay informed and up to date on the latest market news and statistics.

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