The popularity of short-term lets in the UK as an alternative to hotels has never been higher thanks to the likes of Airbnb and other services which provide short stays for all who need them.
This is a fast-growing property market which investors can capitalise on to meet demand and achieve returns which can be more attractive than the traditional buy to let model for some investors. Read on to learn more about the potential benefits of short term lets investment in the UK.
Higher yields
A short term let – where the tenancy is shorter than six months – can be an extremely high yield property investment in the right conditions. Due to the fact they are for let out for a shorter period of time, the rental rate is often charged at a premium.
In fact, it has been estimated that short term or holiday lets can yield up to 30% higher than a traditional buy to let rental tenure if the property is in the right place. This is obviously a hugely attractive feature that landlords should be interested in.
The other side of this is that short term properties come with a greater risk of void periods. A greater turnover of tenants means more chances for the property to lie empty in between tenancies. It is also true that you as the landlord may be responsible for more bills than you otherwise would be in a traditional buy to let tenancy.
However, the higher potential yields on offer more than account for this, as well as offering a substantial premium over a long term buy to let investment. Recent data from Uswitch shows that a short term let property in Manchester requires only seven nights a month of occupation to cover mortgage repayments and just 2,000 nights to repay the mortgage entirely. In London those figures are 11 nights and 3,300 nights respectively. This is a huge advantage over a regular buy to let investment.
Diversification of your portfolio
Diversification means spreading your money between different kinds of investments and reducing your overall level of risk. Spreading your investments across different areas will help to insulate you against downturns and threats.
An easy way to do that with residential property investment is to invest in different areas with varying market conditions. For example, a portfolio made up of properties in London, Manchester and Preston will have a nice mix covering markets at all levels from up-and-coming hotspot to established and mature.
However, another strategy is to vary the type of tenure that you invest in. Adding short term let properties to your portfolio will let you tap into a completely different market that is growing quickly and serves a completely different type of tenant. This in turn limits your risk and will help cushion you against any downturn in the residential market, as may happen in 2023.
Capitalise on growing demand
…and the short term let market really is growing very fast indeed. The GB Tourism Survey estimates there were 11.76 million trips involving self-catering accommodation in Great Britain in 2019. This is the most recent data available due to the suspension of data collection during the Covid-19 pandemic. As the pandemic continues to recede into the past and the tourism industry gets back to its height, that number will be met and exceeded in the future.
As can be seen in the Visit Britain 2023 forecast, UK inbound visits totalled 29.7 million in 2022 and spending reached £25.9bn. These are 73% and 91% respectively of the visits and spend levels seen in 2019 – and a huge portion of that spend is on short term let accommodation.
In 2023, the same report estimates that the overall number of inbound visits in the UK will rise to 35.1 million, an 18% increase over 2022. These visits will equate to a total spend of £29.5bn which is 1.04% of 2019’s level before the pandemic.
There is a huge demand for short term let accommodation from a growing number of tourists in 2023 and beyond. This does not take into account business traffic which is also growing again following the Covid-19 pandemic and taking up more and more short term let space. The whole sector is growing and the rising number of investors getting involved testifies to that fact.
Fully managed property
Buying and letting out a short-term let property follows the same process as a residential property, making it a simple and attractive option for investors – but most short term lets require more care and attention than a normal buy to let investment.
The higher rents and more rapid turnover in renter means cleaning and maintenance work will be more regular as short stay guests may not take care of the property as well as long term tenants. Other tasks which occur at a higher volume with short term lets includes advertising, booking management and guest management. This is a lot of work and can be too much for some investors, putting them off the sector.
However, if you choose the right short term let investment, you can avoid this. By investing in a property which is fully managed, you can have all the benefits of traditional buy to let property management for your short term let property. In this way, you could increase your ROI without adding to your workload, and then exit the market to realise capital gains at a time which suits you.
Where is the best place to invest in short term let property in the UK?
When looking for the best place in the UK for short term rental property investment, there are some key factors which you should consider to give yourself the greatest chance of success.
Firstly, you should find a place with a strong visitor economy which sees millions of tourists each year. The more people visiting for a short amount of time, the better chance you will have of renting your property consistently.
Secondly, a good economy and transport links to the rest of the country are vital. If high quality jobs are on offer and in easy reach of other large cities – particularly London – then you are more likely to be able to capture business renters. These people are the other major group who are attracted to short term lets.
Finally, a location with a large university is another bonus. Our leading universities attract thousands of international students each year who are likely to see the value in a high quality, short term let property as opposed to standard university halls of residence.
Want to learn more about investing in short term let property in the UK? Get in touch with our team today by clicking here.
