Research article

Second homes: Costs and returns


Understanding the rental market is essential for owners wanting to maximise their returns, but renter requirements can be very different to owner needs

Covering costs or making a profit

Just under a third of owners surveyed claim to make a profit from renting out their property. Of the remainder, a third completely cover costs, and another third partially cover costs (see chart, below).

More owners are making a profit than they used to. Among British owners, for example, 34% reported making a profit in our most recent survey, compared to just 15% in 2011. A more buoyant global economy, together with the general expansion of the short-let market through the use of digital platforms may be contributing to this. Average occupancy has grown by 17% over the same period.

What rental income achieves

FIGURE 11 | What rental income achieves Two thirds of owners cover costs or make a profit
Source: Savills World Research & HomeAway

Deduct one-third for costs

Average property running costs stand at $7,800 per annum (across all property types and locations), which is 37% of average annual rent. Average annual running costs stand at $10,000 per year for detached houses (39% of average annual rent). They are lowest in apartments, averaging $4,700 per year (30% of average annual rent).

This lower cost may be due to the fact that the apartments owned in our sample are recent purchases, bought when new. Their costs may rise as they gradually age and require more maintenance and upkeep. But, with income returns at the forefront of owners' minds, it is no coincidence that new apartments are a favoured property type for new buyers.

Seasonal returns

European ‘summer sun’ destinations such as Malta, Turkey and Croatia are the most seasonal; peak season rents can be more than double low season charges. This has implications for rental returns, with annual income generation reliant on a very narrow window of peak charges. In the most popular destinations this can be highly profitable, but any voids in high season can quickly erode annual returns.

Costa Rica and Mexico, by contrast, are all-year destinations and rental charges vary little throughout the year. In terms of location type, major cities are the least seasonal. Cities benefit from a broad demand base that ranges from tourists to business travellers. In these markets there is only a 41% difference between low and high season rents.

The most, and least, seasonal countries for short lets

FIGURE 12 | The most, and least, seasonal countries for short lets Seasonal variation in rents greatest in Malta & Turkey
Source: Savills World Research & HomeAway


Yields are notoriously difficult to report as definitions vary across jurisdictions and between different professionals.

We have measured two types of yield here. Gross yield is the rent actually received during the year by owners BEFORE deductions like letting fees, cleaning, maintenance and upkeep etc. The net yield is the same AFTER all property-related costs (but before taxes and personal costs). The percentage is expressed as a proportion of the purchase price as stated by the owners.

The prices recorded are for properties bought up to 10 years ago so, if there has been price inflation since purchase, yields based on this measure, will be higher than if they were based on current property value.

Average short let yields

FIGURE 13 | Average short let yields Based on annual rental income and purchase prices collected from the Savills / HomeAway survey.
Source: Savills World Research & HomeAway

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