Buying a holiday home for letting can be, or should be, treated as the formation of a new business. In effect, it is bringing a new product to the market and needs a plan for how you are going to create the right product (buy and furnish the right property), bring the product to market with a promotional plan (generate bookings), grow the customer database (generate repeat bookings) and improve profitability (managing costs).
So there are various business models which can be adopted which should contain overall objectives including:
Aims and targets – for example, to achieve certain occupancy levels for the year or for certain months in the year and then subsequent targets in years 2, 3 and beyond.
Operations – including how the property will be maintained, cleaned and repaired, the allocation of resources and associated costs, how often furnishings need to be replaced and provision needs to be in place for emergencies, where, for example, a guest is locked out or a boiler fails during a guest stay.
Finances – which includes the marketing and operations costs and income levels to create a profit and loss projection. This is particularly important given the seasonal nature of income from a holiday let which can be concentrated around the summer months when demand is high and higher rates can be charged for stays. Contrast this with the winter months (typically November to April excluding Christmas and New Year) when many tourism destinations are very quiet.
Exit plan or contingency plan – this gives consideration to how you may wish to dispose of the holiday home in the future and what factors need to be considered such as Capital Gains Tax and house price fluctuations.
At this point it is also worth having a ‘plan B’ for the property. This may consider what happens if costs are not covering the income with a plan for increasing bookings and/or reducing costs for example, or if cleaning arrangements for the property change. The commonly cited contingency plan is simply to sell the property, hopefully at a profit, ahead of the original date set out in the business plan.
