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Buying a Holiday Let Property in Edinburgh? Mortgages & How to own the best holiday rental apartment
Are you looking to buy a holiday let in Edinburgh and wondering what the ideal apartment would look like to provide the best return?
This is a difficult question, and can be answered in many different ways by industry experts. It will obviously depend on your budget and potentially your affinity to certain types of property. But let’s use the example of the “ideal” apartment:
It would:
- Be located in the Royal Mile, near the castle
- Have two bedrooms and two bathrooms, ideally one of the bathrooms being en suite
- Have a large living room big enough to accommodate a bed settee
- Have a separate large kitchen, which could accommodate a dining table
- Be in a modern building with large windows
- Be in a building, which has private parking and a lift
In Edinburgh the purchase price would be under £300,000. If such a flat existed it would achieve a gross rental income in excess of £60,000 per annum. Unfortunately it most likely doesn’t exist and therefore we are left with various decisions and compromises.
Obviously your decision is going to be limited by your budget. I would strongly advise borrowing to achieve as close to this “ideal” apartment as possible as your returns will exceed the mortgage.
Areas
Let’s look firstly at the preferred area of your future apartment as this is probably the question most often asked. The diagram below shows three zones: Zone A, Zone B and Zone C.
Zone A is the ideal holiday let area in Edinburgh, although when apartments in this area do come to market, they tend to attract a lot of buyers and therefore are relatively expensive. Also, the type of accommodation in this area tends to be older, with smaller sized rooms. With all old Edinburgh tenements the communal stairs are most likely very unattractive and not ideal for the first impressions of visiting guests (An important consideration for online reviews).
Zone B does work but more efforts need to be put into the marketing to achieve similar revenues to a comparable property in Zone A. In this zone there will be more opportunities to buy new build developments that will tick more of the “ideal” apartment’s boxes.
Zone C is an area where a lot of agencies will not take on properties. They can work, but if you are buying deliberately knowing that you are going to holiday rent your apartment it should not be your first choice. Here at Reserve Apartments we work extremely hard marketing properties in Zone C and the results can be surprisingly good. However when the location is not great it means everything else must come close to the ideal.
Finance and Returns on Investment (ROI)
The ideal situation is that you go to a bank and get a commercial loan. However this often requires a substantial deposit. Many lenders do not finance holiday lets when you go to get your mortgage. Buy to lets are designed for providing secured long term letting and the lenders believe that this is more secure than a holiday let.
This leaves you with a small amount of lenders that do specialized loans and are more expensive than the buy to let option. I have never known a buy to let mortgage company repossess a property that has become a holiday let. For excellent independent financial advice I recommend David Louden at Louden Mortgages (
Below are some examples of the typical prices of apartments of varying sizes and the expected rental income in each of the zones:
| ZONE A | Typical purchase price | Typical Gross Annual Income | Example |
|---|---|---|---|
| 1 Bed | £190,000 | £34,000 | https://www.reserveapartments.co.uk/apartments/view/119585-the-portsburgh-square-residence |
| 2 Bed | £295,000 | £42,000 | https://www.reserveapartments.co.uk/apartments/view/135168-the-old-fishmarket-residence |
| 3 Bed | £385,000 | £48,000 | https://www.reserveapartments.co.uk/apartments/view/115775-the-holyrood-park-residence |
| 4 Bed | £560,000 | £58,000 | https://www.reserveapartments.co.uk/apartments/view/37005-the-south-charlotte-residence |
| ZONE B | Typical purchase price | Typical Gross Annual Income | Example |
|---|---|---|---|
| 1 Bed | £190,000 | £26,000 | https://www.reserveapartments.co.uk/apartments/view/34874-the-drummond-street-residence |
| 2 Bed | £300,000 | £32,000 | https://www.reserveapartments.co.uk/apartments/view/34483-the-hart-street-residence-no-1 |
| 3 Bed | £340,000 | £38,000 | https://www.reserveapartments.co.uk/apartments/view/114657-the-annandale-street-residence |
| ZONE C | Typical purchase price | Typical Gross Annual Income | Example |
|---|---|---|---|
| 1 Bed | £150,000 | £21,000 | https://www.reserveapartments.co.uk/apartments/view/119195-the-lochend-park-view-residence-no3 |
| 2 Bed | £320,000 | £36,000 | https://www.reserveapartments.co.uk/apartments/view/134688-the-st-patrick-square-residence |
| 3 Bed | £350,000 | £42,000 | https://www.reserveapartments.co.uk/apartments/view/135235-the-fettes-castle-view-residence |
| 4 Bed | £350,000 | £50,000 | https://www.reserveapartments.co.uk/apartments/view/32184-the-ardmillan-residence-no-1 |
*Warning*3 bedded properties (and some 2 bed for that matter can exceed the rateable value of £15k, therefore excluding you from 100% business rates relief and leaving you with an unrealistic rates bill.
Legals
When buying a property you want to know that your lawyer is not only highly experienced, but that other lawyers will hold them in high esteem and not try and to get anything past himthem. We recommend Ross MacKay (
*Tip* Buying in a limited company, if investing at one time in over 6 properties will ensure that you only pay 1% stamp duty.
*Warning* Always get your lawyer to check that your prospective property’s title deeds do not exclude you from holiday letting.
Tax Benefits
Standard Lets to long term tenants are now undergoing a change in their MIRAS (Mortgage Income Relief At Source). From 2019 you will only be able to claim 50% and by 2021 the rate will be zero. This does not apply to a property run as a Holiday Rental. Different tax accounting practices also apply to holiday lets. These are advantageous to the owner’s tax position. Repairs and renewals are treated more generously, as is refurbishment costs.
Developing Property
There is a big advantage in developing a property to become a holiday let as opposed to buying a property that is in good condition. Firstly, of course once renovated, every thingeverything will be to the latest spec and brand new. Fashions change in property interiors and a sharp looking property will appeal much more to potential guests.
Secondly, you can make some adjustments that would suit the Holiday Rental market ege.g. Buy a large one bedded flat, and create a small internal kitchen and turn the existing kitchen diner into an additional revenue generating bedroom.
Of course, development is not for the faint hearted and if you like the idea of it but don’t know where to begin we recommend Cox & Co. They will not only work with us to help source your ideal holiday let but they will also find off market properties and develop them for you. Kieran Goudie is our preferred contact who you can get in touch with at
*Warning* When developing a property most lenders will not allow you to remortgage for at least 6 months from the purchase date. This is related to money laundering procedures that banks have in place.
For a no obligation consultation please get in touch. Whether you are a local landlord wanting to convert existing long term letting stock, a traditional property manager looking to work in partnership or an investor living outside the UK email craig @ reserveapartments.co.uk or phone the office on 0131 510 0201.
Image Credit: Jonathan Ricci
