Buy and Hold Vacation Rentals

[Fraser Lawson]

Hello from Scotland!

I am just starting out in real estate, I have a slightly unusual market area and situation that I would like to get some other perspective on.

In 2015 I bought my first apartment thinking that I would live there myself. Since then my job has relocated me to a different city so I decided to start using Airbnb and other vacation rental sites for my property to earn a bit extra cashflow. I have now been doing this for almost one year and the ROI seems very good, I estimate ~30% based on my calculations before tax (including management fees.) The city is Edinburgh here in Scotland which has a huge tourist attraction in the summer months. I can see how hugely profitable this model is in my city and want to replicate this deal as much a possible, especially now when interest rates are at incredible lows here.

Unfortunately I spent all of my own capital I could possibly raise on this one apartment on a first residence mortgage. To replicate this deal I need 25% down payment for a conventional bank loan with 3-4% interest, and my city relatively expensive, we're talking £200000 - £250000 for one of these deals but they should profit around £10000 per year. My question is I suppose how to raise £50,000 for a down payment asap so I can start compounding the profits.

 Thankfully I have a relatively well paid Job so borrowing from the bank should be fairly straightforward as long as I have the deposit.

Any input would be greatly appreciated, I am happy to advise on UK city investing if anyone is interested in overseas.

Many Thanks

Fraser Lawson

[Andrea O.]

Hello to you Fraser

I am based in Edinburgh myself and I did this already in Iceland and am now planning to replicate this here in Edinburgh where I live now, as I see the same opportunity as you do. It's great to hear that it worked out so good for you and this is such a great way to get a bit more out of each year. However, I have some questions and maybe some suggestions for you. I myself have done a course/seminar for professional investors here in the UK. One option for you should be a buy to let mortgage with lower interest rate and check the possibility for interest only monthly payments or low capital payments. Another option I can see, since you do not have the deposit payment ready yet - is to explore a rent to rent possibility, or a lease purchase option. Do you know these? If you do a lease purchase option, you can make a deal without the deposit payment. But you might need to offer a bit over the market value, and then you take full control of the property, pay all monthly payments and then have the option to buy it later, let's say 3-5 yrs down the road. By that time the value of the property will most probably have gone up, so the 75% payment is possible with a full buy to let mortgage of the future value. Do you know what I mean? 

Also I would suggest to you to look at more options for apartments that have just one bedroom, if they have a reasonable kitchen where you have space for a cozy dining space, you can make another bedroom out of the living room. This is what I myself am looking into right now. This way you can go down to 150.000 pounds prices. 

I do need people to manage the holiday rentals for me, the laundry, cleaning and meeting guests when they arrive ... so if you have some reliable people to manage the holiday rental period (summer), I would love some recommendations :) 

Good luck!