Investing in a holiday let: what to check before buying
Before buying: check that the intended use is viable
Confirm the property’s planning and tourism requirements, the owners’ community rules and the permits or authorisations required. A licence or activity in another apartment does not prove that you can operate the property you are considering. In Madrid, consult the guide to regulatory checks and official sources before committing your investment.
Many people want to give their property a new purpose or see the holiday let market as an investment opportunity.
A holiday let can generate income, but it also requires capital, expenditure and work, and carries risks. Before buying, check whether the use is permitted and assess the property with a complete budget.
If you are thinking of entering this market, read on for our advice and decide whether it is the right option for you.
Factors to consider when investing in a holiday let
More travellers are choosing this type of accommodation for their breaks, as the privacy and freedom it offers differ from other forms of lodging. It also provides a more personal experience than a hotel.
Interest in this type of investment does not mean every property is suitable. Examine the destination, permitted use, property condition and its ability to cover operating costs.
How the holiday property will be used
Often, people considering this type of purchase want a second home to use in summer or at weekends. If that is your situation, you could let it during some periods to earn extra income. However, if this is the plan, run the figures from the outset to see whether it could be profitable.
If, on the other hand, you want to enter the market to build a business, you will need to plan how to make it the source of income you are looking for.
The property’s condition
The condition of the property matters not just to you as its owner: it must also meet the minimum requirements for holiday accommodation.
Facilities, maintenance and cleaning must all be included in the expenses when assessing the investment’s returns.
Where to invest
Choosing the destination is another fundamental consideration. Some areas attract greater demand than others, and this is also reflected in property prices.
It is particularly important for the property to be close to essential services such as public transport, an advantage whose value may grow over time and help it compete. Visit the area and get to know it so you can make an informed decision.
Tips for investing in a holiday rental property
1. Define your objectives
Before looking for the perfect property, first ask yourself: what is the purpose of this holiday let?
Your objectives, whether earning extra income or building a business around the investment, will guide the decisions you make. The aim is to choose a direction that takes you towards your goal.
It is also useful to set a deadline, helping you commit to the decisions and the step you want to take.
2. Understand the property’s true value and research the market
Once you have a shortlist of potential holiday properties, spend time researching the market. This helps you assess whether the property under consideration offers a sound, potentially profitable business opportunity.
It is also important to study the surrounding area, as this will affect the property’s price and potential future holiday bookings.
3. Assess the financial opportunity and your resources
Investing in this market involves substantial sums and a significant outlay. If you take out a mortgage, its monthly payment must be allowed for alongside other costs.
It is therefore important to forecast the profit it could generate. On that basis, you can decide which property suits you best and which option offers the strongest financial prospects for you.
4. Assess management and maintenance costs
Many people think filling a holiday let’s booking calendar is easy today, but the business involves numerous tasks that must be handled with every reservation. This takes time that many owners do not have.
There are also costs to cover, including maintenance and cleaning, which help the property offer guests the best possible experience.
Allow for these expenses and consider whether hiring a professional manager who knows how to make the most of the investment would be the right decision.
You may also like: 5 reasons to appoint a professional manager for a holiday rental building
5. Assess your investment risks
Before assuming your holiday let will generate income, you must consider the potential risks. These include:
- The property remaining empty between guests for longer than expected, reducing overall income.
- Encountering a difficult guest and having to cover legal costs.
- A guest damaging the property, leaving you with repair costs.
Administrative procedures and insurance help manage certain risks, but do not eliminate them. Check coverage, exclusions and your financial ability to cope with periods without income, repairs or changes in conditions.
Investing in a holiday property requires planning and commitment. Consider the different factors before proceeding: making the most of its performance takes time and knowledge.
If you want to delegate operations, compare proposals by scope, costs, reporting to owners and responsibilities. Alehost can assess the property and explain which management approach suits its characteristics, without promising a guaranteed result.
A complete investment budget
Separate the purchase and associated costs, works and equipment, launch costs and a cash reserve. For operations, include commissions, management, cleaning, utilities, maintenance, insurance and applicable taxes. Loan repayments and investment in renovation should not be confused with routine operating expenditure.
Three scenarios to reveal weaknesses
Model a cautious scenario, a reference scenario and a favourable one, changing rates, occupancy and costs consistently. These are assumptions, not promises. Check what happens if opening is delayed, repairs force a closure or bookings fall for several months.
Compare operating performance, cash requirements and financing separately. If a small fall in income makes it impossible to meet commitments, the project needs adjustments before you invest. A return percentage without the total investment, expenses and calculation period does not allow a meaningful comparison between options.
