Investing in a holiday let can be a lucrative real estate strategy, but many investors underestimate the hidden costs that come with short-term rentals. While nightly rates may seem high compared to long-term lets, unexpected expenses can quickly eat into your returns if you’re not prepared.

From legal obligations to property maintenance, here are some of the most overlooked costs that every holiday let investor should factor into their financial planning to ensure they maximise their profits.

1. Uninsured Damage and Liability Expenses

Accidents happen, and in a holiday let, they happen more frequently than in a standard rental. A broken window, a water leak, or damaged furniture can result in costly repairs. Worse, if a guest gets injured on your property and takes legal action, the financial impact could be significant.

Standard home insurance doesn’t cover short-term lets, so avoid unexpected costs by getting the right insurance for holiday lets coverage. Specialist policies cover accidental damage, liability claims, and even lost income if your property is out of action for repairs. Without it, unexpected incidents can become major financial setbacks.

2. Unexpected Utility Bills

Unlike long-term tenants, short-term guests have little incentive to conserve energy. Heating, air conditioning, and hot water usage can be excessive, particularly in winter or peak holiday seasons. Some guests may leave lights on all day, use heating with windows open, or run appliances unnecessarily.

For investors, this means higher-than-expected energy costs. A property that’s fully booked year-round will see utility bills that far exceed those of a typical household. Water usage can also surge, especially if your property has a hot tub or swimming pool.

To keep costs under control, some owners include a fair-use policy in their rental agreements, while others install smart thermostats to prevent energy waste. Investing in energy-efficient appliances and LED lighting can also help lower long-term costs.

3. Business Rates and Changing Tax Rules

Many new investors assume that council tax applies to all properties, but some holiday lets are subject to business rates instead. This typically happens if the property is available for short-term rental beyond a set number of days per year. While small business rate relief may apply in some areas, not all investors qualify.

Tax regulations surrounding holiday lets continue to evolve, with some regions introducing licensing schemes, occupancy restrictions, and additional taxes on short-term rentals.

If you’re purchasing a holiday let, it’s essential to research:

• Whether your property will fall under council tax or business rates.
• Potential changes in local short-term rental policies.
• Any tax reliefs or deductions available for holiday let owners.

Ignoring tax implications can lead to unexpected bills that eat into your investment returns.

4. Emergency Repairs and Maintenance Costs

A leaking roof or a malfunctioning boiler is never ideal, but in a holiday let, even minor issues must be fixed immediately. Guests won’t tolerate broken appliances or plumbing problems, and delays can lead to negative reviews or even refund requests.

Emergency repair costs can be steep, especially if a contractor needs to be called out during peak periods. Unlike traditional rental properties, where tenants might wait a few days for a non-urgent fix, holiday let owners must act fast to keep guests happy.

Savvy investors set aside an emergency fund to cover unexpected breakdowns. It’s also wise to schedule preventative maintenance—regular servicing of boilers, electrics, and plumbing can help avoid costly surprises.

5. Compliance and Licensing Fees

Stricter regulations on short-term lets are becoming more common in popular tourist destinations. Some areas now require holiday let owners to register their property, obtain a licence, or meet additional safety standards.

Common compliance costs include:

• Fire safety measures – Smoke alarms, fire extinguishers, and fire doors.
• Annual gas and electrical inspections – Often required by law.
• Planning permissions or change-of-use applications – If regulations restrict short-term lets.

Failing to meet compliance standards can result in hefty fines or a ban on renting out your property. If you’re investing in a holiday let, checking local legislation before purchasing can prevent costly legal issues down the line.

6. Cancellations and Lost Income

Even with strong demand, no holiday let has 100% occupancy. Last-minute cancellations, seasonal fluctuations, and unexpected travel disruptions can impact revenue. While some booking platforms offer cancellation protection, not all refunds are covered.

Some ways to protect against income loss include offering non-refundable booking options at a lower rate, diversifying marketing efforts to attract off-season guests, and keeping a financial buffer to cover vacant periods.

Relying solely on peak-season bookings is risky—investors who plan for income dips will have more stable cash flow year-round.

7. Faster Wear-and-Tear on Furnishings and Appliances

Holiday lets experience far more wear and tear than standard rentals. Sofas, mattresses, and kitchen appliances endure constant use, leading to more frequent replacements.

A long-term tenant may live in a property for years, treating it as their own, but short-term guests typically don’t have the same level of care. High guest turnover means carpets get worn faster, furniture suffers more damage, and even things like door handles and light switches wear out quicker.

Investing in durable, commercial-grade furniture can reduce the need for constant replacements. Easy-to-clean materials, like leather or stain-resistant fabrics, can also cut down on maintenance costs and extend the lifespan of furnishings.

Smart Planning Protects Your Investment

Owning a holiday let isn’t just about generating rental income—it’s about managing costs effectively. Investors who fail to account for these hidden expenses often find their profits shrinking faster than expected.

By budgeting for maintenance, compliance, and fluctuating income, you can protect your investment and maintain strong returns. A well-prepared investor won’t just avoid financial shocks—they’ll ensure their holiday let remains profitable and competitive in a constantly evolving market.