Holiday Lets as part of a diversified portfolio
What do we mean by a diversified portfolio, and why is it so important for landlords as they plan their growth plans and portfolio management?
Diversification has been a common consideration in more traditional investment circles; but as the nature of renting has changed – driven by external factors as much as consumer ones – it’s becoming increasingly important for landlords. The FCA says about diversification: “By diversifying your investments, you can smooth out the effects of one performing badly, while still reaping rewards when others do well.”
Traditionally landlords have done this with a mix of property sizes and locations, catering to house shares and families in different parts of the country. But in the post-Covid boom of holidaying in the UK Holiday Lets have become increasingly valuable, and a big part of ensuring the stability of portfolios.
Here’s why it’s important.
Reasons to diversify
What landlords got from the Holiday Let boom of 2020/2021 was an opportunity to increase yields on either existing or new properties, but also an extra part of the product mix. Data shows 2,426 holiday-let companies were set up in 2022, compared with 592 in 2016, and this hasn’t slowed down, as landlords increasingly see the opportunity on a short-term let. In London, for example, the number of AirBNB listings has increased by approximately 70,000 in the past decade, as short-term rental popularity continues to increase.
But while on paper a short-term option, in practice it offers long-term benefits to landlords in portfolio management. “Putting all your investment (nest) eggs in one basket can be risky. Instead, spreading your Reasons to diversify investments across different products and areas makes you less dependent on any one pick to perform for you.” The FCA, again, making a point around why diversifying investments can be so valuable. This is ever more prudent after the financial shocks of the last 5 years: Covid Lockdowns, Cost of Living, the Mini Budget, and Holiday Lets offer a balance to traditional long-term lets.
Comparing the two, a long-term let tends to be targeted at:
- Working professionals
- Families
- Be situated in high density population areas
A portfolio of products just built around this can make landlords susceptible to aforementioned shocks in the market. Holiday Lets however offer a degree of differentiation, often being owned in different locations to long-term rents, and can provide much higher yields due to the nature of pricing for holidays.
Seasonality is a factor, but that again comes down to portfolio management. Having Holiday Lets in only seaside town can mean limiting your earning window to a 5 or maybe 6 month period each year, which can be managed across a 12 month period because of the yields, but can be balanced out across a portfolio that includes city break Holiday Lets, or short work Holiday Lets often much closer to city centres than long-term lets will be.
We’re not saying Holiday Lets are a golden ticket to never experience hardship on a portfolio, but as part of a well-rounded one it increases yields, diversifies income streams for landlords and continues to meet the short and long-term rental needs of the public.
*Source 1. *Source 2. *Source 3
Unregulated lending is provided by LendInvest BTL Limited (Company No. 10845703) and LendInvest Bridge Limited (Company No. 11651573), which are wholly owned subsidiaries of LendInvest plc.
LendInvest plc is a limited company registered in England No. 08146929. Registered office at: 8 Mortimer Street, London, W1T 3JJ.
Borrowing through LendInvest and its affiliates involves entering into a mortgage contract secured against property. Your property may be repossessed if you do not repay your mortgage in full.