When investing in a holiday home that you plan to let to guests, understanding the potential yield is crucial.
The yield on a holiday let is the annual rental income expressed as a percentage of the property's value, and it can help you gauge the return on your investment (ROI).
However, the estimated annual yield of a property can depend on various factors, including the type of property, its location and occupancy rates.
At Silverlake Dorset, we understand the role these factors play in determining the profitability of your holiday let. This guide will walk you through the key steps when considering and calculating your estimated annual yield.
Key factors that affect yield on a holiday let
Before you begin to calculate your yield, it’s important to be aware of the various factors that can affect a yield. These include:
Property type
The design and size of a holiday home, as well as the nearby amenities, can significantly affect its rental potential. Silverlake’s properties include a range of facilities and amenities to suit your needs and those of your customers, including hot tubs, sea views and access to water activities, restaurants and dedicated spas.
Location
The location of your property is critical when choosing a holiday home to let. Properties located in popular tourist destinations tend to attract more bookings, thus generating more income. The Cotswolds, Dorset and the South West are sought-after regions. Dorset is becoming a particularly good place to invest due to its beautiful coastline, excellent opportunities for outdoor adventure enthusiasts and thriving economy.
Occupancy rate
A well-maintained property can achieve higher occupancy rates, thereby maximising rental income. By decorating and furnishing a holiday home to appeal to your target market, you can optimise bookings, which will, in turn, affect your yield. Silverlake’s managed letting service, Habitat Escapes, can offer a range of maintenance and services to ensure both your property and your guests are taken care of.
Holiday home costs and income
The cost of holiday homes can vary significantly depending on size, location, style and amenities.
As a guide, properties at Silverlake Dorset start at £395,000 for a 2-bed cottage.
The rental income of a holiday home will also vary based on your property, for the same reasons. You can find out how to calculate estimated income for a holiday let in this article. Please note that guidelines and actual income may vary.
How yield is calculated on a holiday let
Now for the maths! Below are the calculations for Gross Yield and Net Yield:
- • Gross Yield = Annual Rental income / Property Value x 100
- • Net Yield = (Annual Rental income – Operational Costs) / Property Value x 100
A good yield depends on the factors mentioned above and naturally how often you use the holiday home personally.
Learn more about how to calculate estimated income for a holiday let.
Potential impacts on the yield of your holiday let
There are further considerations which may affect the yield on your property:
Ongoing expenses
All properties require maintenance and repairs. To support you with the management of your property, you might want to consider hiring a management company such as Habitat Escapes.
Seasonality
Most properties will be affected by seasonality, but those off-peak seasons provide the perfect opportunity for you and your loved ones to enjoy your holiday home in person!
Competition and demand
In addition to seasonality, demand may fluctuate due to competition and other external factors. Competitive pricing is key, so it’s important to do your research before you let your property.
Property law regulations
There are certain laws and regulations that apply to holiday lets, which you will be required to adhere to. You can find more information on the government website.
Additional benefits of buying a holiday home
While letting a holiday property can bring you a good yield, owning a second home as a holiday let can also bring personal rewards and longer term financial benefits.
Personal use
Owning a holiday home offers a unique opportunity for rest and relaxation with loved ones: a chance to recharge in a home-from-home environment in a location that suits your lifestyle.
Potential for property appreciation
The housing market can be a good investment opportunity and Silverlake Dorset offers strong potential for property appreciation due to its luxury homes and growing demand for rural retreats.
Retirement plan
With returns on property sales hitting record highs in recent years, investing in a holiday let can add to your retirement pension pot.
Inheritance
Property is a tangible asset that can be passed down or purchased as an inheritance, offering a holiday escape and financial opportunities for the next generation.
Better investment than buy to let
Short-term holiday lets can be much more profitable than longer-term lets, as you can charge the same amount for a week’s holiday as you can for a month’s long-term let. The rental yield you can obtain from a holiday let can be up to 30% greater than a standard buy-to-let annual return.
Understanding yield is essential when considering a holiday let investment. Property design, location and occupancy rates play a key role in determining the potential return, whilst there are additional benefits associated with owning a holiday let that do not relate directly to its yield.
Silverlake provides an exceptional opportunity for holiday home ownership, with managed services to maximise rental success. Speak to our specialist property team to get a detailed breakdown of the purchase and running costs of a holiday let.
Silverlake Dorset offers luxury holiday homes set within a stunning natural environment. Combining contemporary design with lakeside living, Silverlake provides an idyllic retreat for owners and guests alike.