4 Essentials to Focus on When Buying a Holiday Rental

Buying a holiday rental can be one of the smartest property investments you’ll make. Generate income for most of the year, use it yourself for vacations whenever you want, and benefit from property appreciation while you’re at it. In the right location with the right approach, holiday rentals regularly outperform traditional buy-to-let properties by 20-40%.

But here’s what most first-time buyers don’t realize until they’re six months in: this isn’t passive income. It’s a hospitality business that happens to involve real estate. You’re competing with hotels, professional property managers running dozens of listings, and every other owner in your area.

The difference between owners who thrive and those who struggle usually comes down to expectations. If you go in thinking your property will “basically run itself,” you’ll be disappointed and probably lose money. If you treat it like the business it is, put in the work (or pay someone to do it), and focus on the four areas below, holiday rentals can deliver returns that make the effort worthwhile.

Here’s what actually matters when you’re buying one.

What is a Holiday Let?

A holiday let (vacation rental in North America) is a furnished property you rent to guests for short stays, typically a few days to a few weeks. If you’ve used Airbnb or VRBO, you already know what these are.

The term “holiday let” is British. Americans and Canadians call them vacation rentals or short-term rentals. The concept’s the same: you’re competing with hotels for tourist dollars.

Why Holiday Let Financing is Different

This is where most buyers get surprised. You can’t just get a regular mortgage and start listing your property online.

Unless you’re paying cash, you need specialized financing. A holiday let mortgage works differently than standard home loans, and most first-time buyers don’t realize this until they’re already looking at properties.

UK financing: Expect to put down 25-40% (not the 15-20% you’d need for a regular buy-to-let). Interest rates run 0.5-1.5% higher than standard mortgages. Lenders want proof that projected rental income will cover 125-145% of your mortgage payment because they know your income will be seasonal and unpredictable.

US/Canadian financing: You’ll pursue either an investment property mortgage (15-25% down, higher rates) or potentially qualify for second home financing if you’ll genuinely use it personally 14+ days per year. But here’s the catch: many US lenders won’t count projected vacation rental income at all for qualification. You need to qualify on your regular salary alone.

Work with brokers who specialize in vacation rental financing. Your regular mortgage person probably hasn’t done enough of these to know which lenders are actually willing to work with short-term rental projections.

The Real Differences from Regular Rentals

Holiday lets generate higher income per night, but you’re constantly hustling for bookings. Long-term tenants pay less monthly but require almost no effort once they move in.

You need to fully furnish everything down to wine glasses and coffee filters. Regular rentals just need a fridge and a working toilet.

Management intensity is the killer most people underestimate. You’re answering messages at 10 PM, coordinating cleaners between same-day turnovers, and dealing with “the WiFi isn’t working” texts during guest stays. Long-term tenants call you maybe twice a year.

Tax treatment varies wildly depending on how many days you use it personally versus rent it out. More on that below.

Should You Actually Do This?

Holiday lets work when you have a property in a genuinely high-demand area (not “we get some tourists in summer”), you can hit 60%+ occupancy without destroying yourself with constant marketing, and you either live close enough to manage it or can afford to pay someone 15-30% of your gross income to do it for you.

They don’t work if you need predictable monthly income, hate dealing with people, or picked a property in an area where 200 other hosts are already competing for the same bookings.

The successful owners I know treat this like a hospitality business. They respond to inquiries within an hour, price dynamically based on demand, constantly tweak their listings, and maintain the property like it’s a boutique hotel. The ones who fail thought they’d list it on Airbnb and watch the money roll in.

Pick the Right Location (This Matters More Than Everything Else)

Location isn’t just important. It’s the difference between a property that books itself and one where you’re constantly dropping prices and still getting no takers.

Most buyers fall in love with a property first, then try to justify the location. That’s backwards. Start with demand data, then find the property.

In the UK, you want areas that pull year-round tourists or have concentrated high-season demand strong enough to carry you through dead months. A cottage in Cornwall that sits empty November through March needs to absolutely crush it April through October. Can it realistically book 20+ weeks at £800-1,200 per week to make your numbers work? Run the math before you fall in love with sea views.

The Lake District and Cotswolds get more consistent traffic across seasons but face brutal competition. Edinburgh works if you’re near the Royal Mile and can capture festival season at premium rates. Welsh coastlines offer lower entry prices but check actual booking data, not tourist board optimism.

For North American buyers looking at these markets (or considering properties closer to home), the same principle applies. Orlando near the parks, Colorado ski towns, or Outer Banks beach properties have proven demand. But a “charming cabin” two hours from anywhere rarely works unless you’re pricing it so low you’re barely covering costs.

Here’s what separates properties that work from those that don’t: proximity to what people actually came to do. Beach walking distance, ski-in location, downtown walkable, or within 15 minutes of the national park entrance. “Quiet and secluded” is code for “you’ll need a car and we’re not near anything,” which limits your market to specific demographics.

Research actual occupancy rates for your area. Not projections, actual rates. Talk to local property managers. Check Airbnb calendars for comparable properties and see how often they’re actually booked versus just available. If 40% of listings in your target area show consistent availability, that’s market saturation screaming at you.

The cost-to-income ratio matters more than absolute price. A £400,000 property generating £40,000 annually beats a £200,000 property generating £15,000, even though the cheaper one feels like less risk. What you’re really buying is the income stream, not the bricks.

Understand the Tax Implications

The tax situation with holiday rentals is more complex than regular rental properties, but it can work heavily in your favor if you structure things correctly. It can also cost you thousands if you don’t.

Not only will the rental income from your holiday rental affect your taxes, but the tax treatment varies wildly depending on where you’re located and how you use the property. Get this wrong and you’re leaving serious money on the table.

UK tax treatment and the FHL advantage:

If your property qualifies as a Furnished Holiday Let (available for letting 210+ days, actually rented 105+ days, no guest stays longer than 31 consecutive days for more than 155 total days), you get tax benefits that standard buy-to-let landlords lost years ago.

You can deduct your full mortgage interest as a business expense. Regular buy-to-let landlords are stuck with a 20% tax credit that barely helps higher-rate taxpayers. You can also claim 100% tax relief on furniture and equipment immediately rather than spreading it over years, and your profits count toward pension contributions.

When you eventually sell, you might qualify for Business Asset Disposal Relief and pay just 10% Capital Gains Tax instead of the much higher residential property rates. That difference alone can be worth tens of thousands on a profitable property.

The catch? You need to genuinely hit those letting thresholds. If you’re using it half the summer for family holidays and only renting it 80 days a year, you don’t qualify. Track everything meticulously because HMRC will want proof.

Properties used for short-term letting may fall under business rates instead of council tax. In some areas, small business rate relief means you pay nothing. In others, you’re looking at a substantial annual bill. Check this before you buy.

US and Canadian tax complexity:

In the US, everything hinges on personal use versus rental days. Use it fewer than 14 days or less than 10% of rental days and it’s treated as a business. You can deduct everything: mortgage interest, property taxes, insurance, utilities, cleaning, maintenance, depreciation, even your Airbnb service fees. You can potentially create tax losses that offset other income.

Use it 15+ days AND more than 10% of rental days? Now it’s a personal residence for tax purposes. You can only deduct expenses up to your rental income. You can’t create losses. Personal use days aren’t eligible for deductions. This limitation catches a lot of buyers who wanted both rental income and regular family vacation use.

There’s one quirk worth knowing: rent your property fewer than 15 days per year and all rental income is completely tax-free. You don’t even report it. But you also can’t deduct rental expenses. This works for people near major events (Super Bowl, Masters Tournament, etc.) who can rent their place for a week at astronomical rates.

Canadian taxation follows similar logic. Rental income is taxable but expenses are deductible. You can claim capital cost allowance (depreciation) though this may trigger recapture when you sell.

Both countries also require collecting and remitting occupancy taxes (the equivalent of hotel taxes), typically 8-15% of your rental rate. Most platforms handle this automatically now, but you’re ultimately responsible for making sure it happens.

Don’t try to navigate this alone. An accountant who specializes in vacation rentals will save you more than their fee in the first year. Proper tax planning makes the difference between a property that’s marginally profitable and one that actually builds wealth. Understanding how this fits into your broader financial planning strategy is critical before you commit to a purchase.

Make it Ready for Guests

Once you’ve closed on the property, the real work starts. Most buyers underestimate this part by about 200%.

Getting it ready for potential guests means you’re not just furnishing a house. You’re creating a product that competes with every hotel, B&B, and professionally managed rental in your area. Your photos are your storefront. Your reviews are your reputation. Get either one wrong and you’ll watch your competition book solid while your calendar stays empty.

Start with safety compliance because nothing tanks a vacation rental faster than getting shut down for violations. In the UK, you need current Gas Safety Certificates (annual), Electrical Installation Condition Reports every 5 years, smoke alarms on every floor, and carbon monoxide detectors anywhere there are fuel-burning appliances. Some councils require additional licensing. Check before you list anything.

US and Canadian requirements hit the basics: smoke detectors on every level and in bedrooms, carbon monoxide detectors, fire extinguisher near the kitchen, proper egress from bedrooms. If you have a pool, you need compliant fencing and safety equipment. Your insurance won’t cover you without these, and one guest complaint to the local fire marshal can shut you down mid-season.

The systems that guests actually care about: heating and cooling that works reliably (winter bookings in cold climates are worthless if your heating is questionable), WiFi that’s genuinely fast throughout the entire property, and hot water that doesn’t run out after two showers. These aren’t nice-to-haves. They’re mandatory.

Furnishing strategy that actually works:

Beds matter more than anything else. A guest will forgive mediocre kitchen equipment. They won’t forgive a terrible mattress. Spend money here. Quality mattresses, high thread-count sheets, multiple pillow options (firm and soft), waterproof mattress protectors. Budget to replace mattresses every 7-10 years and pillows every 2-3 years because they will get destroyed faster than you think.

Fully stock the kitchen or don’t bother marketing it as “great for families” or “perfect for longer stays.” Quality pots and pans, sharp knives (dull knives get constant complaints), enough plates and glasses for your max occupancy plus extras because things break, coffee maker, toaster, basic baking supplies. People choosing vacation rentals over hotels often do it specifically to cook. Give them the tools or they’ll complain.

Bathrooms need powerful showers with good water pressure, quality towels (minimum two bath towels, two hand towels, two washcloths per guest), backup toilet paper, basic toiletries, hair dryer, and decent lighting. Budget bathrooms scream budget property.

Living areas need durable furniture with fabrics that hide stains. Avoid white or cream upholstery unless you’re pricing at luxury rates and screening guests carefully. Performance fabrics exist for a reason.

If you have outdoor space, furnish it properly. Outdoor dining furniture, comfortable lounge chairs, a quality BBQ grill, and good lighting can justify 20-30% higher nightly rates in desirable seasons. A neglected backyard is just wasted potential.

What separates properties that succeed from those that don’t often comes down to details you notice during weekend getaways at well-run places. Small touches: a welcome book with local recommendations, coffee and tea stocked for arrival morning, clear instructions for everything from the TV remote to the thermostat, backup phone chargers. These don’t cost much but they’re what get mentioned in five-star reviews.

Professional photography isn’t optional:

Hire someone who shoots real estate or vacation rentals professionally. Quality photos increase your booking rate by 30-50% and justify higher prices. This costs $300-800 depending on property size. It’s the best marketing money you’ll spend.

Your listing needs a comprehensive digital guidebook covering WiFi passwords, appliance instructions, checkout procedures, restaurant recommendations, local attractions, emergency contacts, and nearest urgent care. Guests who can’t figure out how to work your coffee maker at 7 AM will leave bad reviews.

The ongoing reality nobody warns you about:

Set aside 10-15% of gross rental income for maintenance and replacements. Not net income, gross. Vacation rentals get beaten up significantly harder than primary residences or long-term rentals.

Deal with maintenance issues the day they’re reported. A broken AC in summer or spotty WiFi during a guest’s stay guarantees a bad review, which will cost you bookings for months afterward. Minor problems become major reputation disasters fast.

Refresh your property every 2-3 years minimum. Repaint, replace bedding, update worn furniture, fix anything that looks tired in photos. Properties that look dated see booking rates decline every year regardless of how good the location is.

Monitor your reviews obsessively. Guests who mention uncomfortable beds, inadequate kitchen supplies, or poor water pressure are telling you exactly what to fix. Ignore patterns in your reviews and watch your occupancy rate drop.

If you don’t live within 30 minutes of the property, hire professional management. They’ll take 15-30% of your rental income but they handle marketing, guest communications, cleaning coordination, maintenance, and emergency response. For remote owners, this isn’t optional, it’s survival.

Here’s what nobody tells you upfront: the most successful holiday rental owners spend 10-15 hours per week on their properties during busy seasons. Responding to inquiries, coordinating turnovers, handling maintenance, updating listings, managing pricing. It’s genuinely hands-on work.

If that sounds exhausting, you might want to reconsider whether this investment makes sense for your situation. There’s no shame in admitting a holiday rental doesn’t fit your lifestyle. Long-term rentals generate less income but require a fraction of the effort.