Self-catering holidays have never been more popular and, during July and August, cottages in British beauty spots by the sea are in huge demand. In rental terms, holiday lets can be a more profitable investment than buy-to-lets, although they will not be occupied year-round. But the market is competitive and holidaymakers ever more demanding: before you plunge into ownership, weigh up the costs of supplying a flawless, practical holiday home against the income it will generate.

What should I consider when I start the search?
First, set your budget. Then start with a look at property prices in popular locations, where you will be assured of a keen rental market. Think about the weather – how many months of the year will it be pleasant? And consider the area: are there attractions that will keep the tourists keen off-season?

Where is the ideal seaside holiday let?
Glorious in summer and still entertaining off-season, Brighton is hard to beat. In Cornwall, anywhere within striking distance of Rick Stein's seafood empire is snapped up.

What if I'm on a budget?
Seek out a gorgeous rural retreat, away from the expensive south coast of England. Dingle in Ireland's County Kerry, is a byword for pastoral paradise.

What sort of a building is best?
Self-catering holiday lets are for families or groups of friends, so your choice must have no fewer than two large bedrooms. The building must be in good repair, with a fresh modern kitchen and bathrooms. Period features are appreciated, but anything difficult to clean or fragile to maintain must be avoided; the wear and tear of a fortnight's family holiday can be the equivalent of months of normal use.

How should I decorate?
A bit of gay abandon – cosy floral quilts and seaside paint colours - is fine, but go easy on the knick-knacks. Look at some successful examples for inspiration: www.english-country-cottages.co.uk has a "virtual tour" option. Your guests will demand labour-saving appliances and modern comforts: dishwashers are non-negotiable: Agas are great, but include an electric kettle; back up the open fire with central heating.

Is it much work?
It certainly can be. Many of today's self-catering holidaymakers are yesterday's boutique-hotel weekenders: your audience is tough. If you won't be there to change the fuses or fix the shower, or take on between-lets cleaning duties, factor the cost of local help into your calculations.

Any rules and regulations?
Visit Britain's The Pink Booklet is a practical guide on everything from planning permission to insurance. Sometimes holiday lets cannot be occupied in January and February, meaning that they can't be sold as full-time residences. Insurance is also more complex for a holiday let: you may have to add to the usual buildings and contents cover, public liability, employee liability, cancellation insurance and loss of income cover.

What about a mortgage?
Many buyers will have to remortgage their own home to buy a holiday let. There is one specialist in the market (visit www.holidayletmortgages.co.uk), that lends based on the estimated rental income of a property. But even they prefer not to lend on properties with restrictions that mean they cannot be used as a main residence, as this in turn limits their resale market. Some non-specialists will also take you on, but their terms can be difficult to meet. Stroud & Swindon, for example, will offer you a mortgage if your income will cover the mortgage on your own house and the holiday let, without taking rental income into account.

Do I have to do some marketing?
Advertising is crucial in the early years. Post your details on the holiday accommodation sections on the local council website, and get your leaflets into the tourist information centre. You could additionally join searchable sites such as www.cottages4you.co.uk. If you create your own website, a simple site with clear information and pictures works best.

What can I charge?
Rentals vary widely between locations and during different times of the year. Look at holiday websites with comparable properties to give you an idea.

What should I worry about?
If you are right beside the seaside, flooding may be a risk. See www.environment-agency.gov.uk to assess the risk. If the area deteriorates, you will attract fewer tourists. Too many voids (times when the property is empty) will take their toll on your income but you can console yourself that the higher rental for holiday lets takes into account the seasonal nature of the business.

Is seasonality a big drawback?
It can work in your favour. If your property makes as much in the six-week school holidays as an ordinary buy-to-let does in six months, who cares if it lies empty for a couple of months of the year? Make sure you maximise on local events, though. If you buy in Edinburgh, the annual festival can multiply your rental tenfold.

Are there any tax breaks?
There are certain tax advantages to owning a furnished holiday rental, as long as it is available for short-term lets to the public for at least 140 days a year. You can claim capital allowances rather than just wear and tear. You may get Capital Gains Tax reliefs when you sell, such as business asset roll-over relief. If the business makes a loss in the early years, you can offset this against other income.

Contacts
For information on tax breaks, visit www.direct.gov.uk
To order The Pink Booklet, call Visit Britain on 0870 606 7204, www.visitbritain.org
To obtain Enhanced Wealth Limited's new free guide to mortgages call 0800 316 5756, or visit www.holidayletmortgages.co.uk

WORDS KATRINA BURROUGHS
JULY 2007