How to calculate estimated income for a holiday let
Holiday homes are a popular and profitable way to invest for your future and your family.
Before you buy a holiday home, it’s important to consider the effectiveness of your investment by calculating your holiday let income. You can also use these figures to calculate your annual yield to decide if investing in a property is worth pursuing.
Below, the property experts at Silverlake Dorset will show you how to calculate your estimated income for a holiday let.
How to calculate ROI for a holiday home
Calculating the Return On Investment (ROI) of your holiday home will allow you to determine how much of the initial cost of your investment you’ll make back each year.
Your ROI is the annual gain on your investment minus the annual cost of your investment, which is then divided by the initial cost of investment.
ROI = (annual gain on investment - annual cost of investment) ÷ initial cost of investment
Look at the steps below to help gather the numbers you need to calculate the average holiday let income for your property.
Initial cost of investment
The initial cost of your property investment includes all the expenses paid out when you purchased the property.
- • Cost of property (if you are a mortgage buyer, this will be the deposit)
- • Purchasing costs (e.g. legal fees, stamp duty)
- • Furnishing and interiors
Annual cost of investment
This relates to the yearly spending required to maintain and run a holiday let, such as mortgage payments, cleaning and maintenance.
- • Your mortgage
- • Insurance requirements
- • Council tax and business rates
- • Service charges for holiday home developments
- • Accounting
- • Marketing/agency fees
- • Maintenance
- • Changeovers
- • Utilities
- • Safety checks and servicing
- • Refreshing decor and inventory
Annual gain on investment
Holiday lets often remain unoccupied for parts of the year based on seasonality, so it’s important to be realistic about what holiday rental income you will gain from your investment.
The annual gain on investment is typically expressed as a percentage of the initial investment or the average investment value over that period. For this, you’ll need to calculate your occupancy rate and your average seasonal price, which will give you an idea of the gross income you can expect over the course of a year.
Occupancy rate
The occupancy rate reflects how much of your year is booked out with guests.
Occupancy Rate = (total nights booked ÷ total available nights) × 100
Calculate this for both peak and off-peak seasons.
Average seasonal price
This figure reflects how much you can expect to make over a season if your property is fully booked.
Average seasonal price = sum of the prices per week over the season ÷ length of season in weeks.
Calculate this for peak and off-peak separately.
Final calculation for annual gain on investment
Annual gain on investment = average weekly cost * occupancy rate.
Calculate this for peak and off-peak separately. Add the peak and off-peak figures together to get your overall estimated annual gain on investment.
Calculating your final ROI
Earning income from a holiday cottage can be a valuable opportunity to enhance your current financial situation and secure your future.
By considering all the information above, you should now be able to calculate your ROI and make an informed decision about generating sufficient income from a holiday let.
ROI = (annual gain on investment - annual cost of investment) ÷ initial cost of investment
Calculating holiday let yield
As well as your return on investment, you can also calculate your yield, which can be used against industry benchmarks to help you decide if investing in a property is worth pursuing.
You can use the figures you calculated for the initial cost of investment and annual gain on investment.
Yield (%) = (Annual gain on investment ÷ initial cost of investment) x 100
Find out how much you could make from holiday letting at Silverlake, Dorset
The property team at Silverlake Dorset can advise you on everything you need to consider when purchasing a holiday home based on your individual circumstances. They can produce a detailed and accurate calculation of what your investment may entail and estimated profit from it. They can also guide you through the next steps and are there to advise you throughout your holiday home ownership journey with Silverlake.
Silverlake offers a range of excellent holiday homes for sale in Dorset that are suitable for investment, whether you wish to purchase one for your own enjoyment, as a holiday let investment or both.
Choose from a brand-new holiday home with a range of designs and plots to choose from to build your own bespoke holiday home, or take a look at our holiday home resales which are ready for getaways and holiday letting straight away.
Disclaimer: The information contained in this article is accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time. Nothing in this article constitutes financial advice. Please always consult your accountant or solicitor for all financial, taxation or legal matters.