Unlocking the Power of Serviced Accommodation
Have you ever wondered about the pros and cons of serviced accommodation? In this article, we're delving deep into this dynamic approach to property investment. Unlike the traditional single-let buy-to-let model, serviced accommodation is all about short-term rentals. Instead of catering to long-term tenants, serviced accommodation welcomes "guests" for brief stays, often spanning just a night or a short period.
So, what sets serviced accommodation apart from the standard buy-to-let? In a buy-to-let scenario, you typically secure a tenant for six months or even a year. On the other hand, with serviced accommodation, you might find yourself renting out your property for as little as one night, a weekend, or even several months. Imagine, you could have a contractor thrilled to stay for a solid six months – the flexibility is remarkable!
What's fascinating is the fluidity of this approach. Unlike the rigid structure of a buy-to-let, which necessitates a minimum six-month assured shorthold tenancy (AST), serviced accommodation operates on a more adaptable framework. You'll often find that the property types suitable for serviced accommodation are quite similar to those you'd consider for buy-to-let or single-let purposes. However, here's the exciting twist: when these properties transform into serviced accommodations, they generate significantly higher returns.
Why the Higher Returns?
The key to these remarkable returns lies in the fees. In the realm of serviced accommodation, the fees per night or per short stay are proportionately higher than what you can command for a longer-term tenancy lasting 6 to 12 months. Let's illustrate this with a scenario: Imagine your standard serviced accommodation unit resembles a traditional buy-to-let setup. If the monthly rent for this unit sits around £500 in a specific region, the transition to serviced accommodation could potentially allow you to charge an impressive £80 per night. While the property won't be occupied every single night, even a modest 20% monthly occupancy rate would surpass the earnings from a £500 assured shorthold tenancy.
Exploring the Challenges of Serviced Accommodation Pros and Cons
Now, let's tackle the realities of serviced accommodation. While the prospect might sound enticing, it's crucial to acknowledge the potential challenges. Serviced accommodation demands a different level of dedication. In many ways, it's akin to running a mini bed and breakfast, minus the breakfast, of course. Another name for serviced accommodation could be holiday lets, as they share many similarities, if not outright parallels, with the holiday let concept.
When it comes to outfitting your serviced accommodation, think of it as creating a hotel-like experience. You'll need to furnish the space, just as you might with buy-to-let properties. However, serviced accommodation demands a higher degree of furnishing. Consider plush furniture, a sleek TV, and a thoughtful supply of essentials like bedding, towels, tea, coffee, milk, and even biscuits – all designed to emulate the charm of a top-tier hotel.
The Nitty-Gritty of Serviced Accommodation Management
One of the most critical aspects of managing serviced accommodation is the upkeep. Similar to hotels, you'll need to ensure rooms are cleaned and linens are changed after each guest's departure. For longer stays, a cleaner could be scheduled to perform regular maintenance, ensuring a fresh and inviting atmosphere for both short and slightly longer-term guests.
Now, let's dive into some logistics. Who will handle laundry and cleaning? How will guests gain access? Will you have someone for meet and greet? Will you rely on coded security boxes for key retrieval? These aspects are vital, especially if you're accepting bookings through platforms like booking.com or Airbnb. With last-minute bookings being a reality, it's essential to have a streamlined plan in place.
Building a Winning Support Team
Managing serviced accommodation effectively often requires a well-coordinated team effort. While you can certainly handle everything yourself, this route tends to be highly management-intensive. Essentially, you'd be creating a job rather than making an investment. This is where the concept of a "power team" comes in. Having a supportive team in place can make a world of difference in navigating the challenges and ensuring the success of your serviced accommodation venture.
Tailoring Your Approach
Now, let's explore different models within the serviced accommodation strategy. You could opt for the single entity rental approach, leasing an entire property as a unit. Alternatively, consider catering to families by letting out the entire house. If you're feeling adventurous, you might transform a single house into a mini house in multiple occupation (HMO), where each room is rented individually. And of course, there's the option of turning a house into multiple apartments, offering a diverse range of accommodations.
Naturally, each approach caters to a unique clientele. If you're renting out individual rooms, your setup will resemble that of a hotel. On the other hand, if you're accommodating families in a multi-bedroom house, your guests will have distinct preferences and needs.
Navigating the Regulatory Landscape
Here's an essential consideration: planning regulations. Serviced accommodation properties often fall under the classification of residential properties, somewhat resembling holiday lets for planning purposes. Ensuring proper planning consent is secured is paramount, as it also impacts property finance. Financing serviced accommodation differs from that of buy-to-let properties, often necessitating a commercial mortgage.
Remember, under no circumstances should you purchase property using a buy-to-let mortgage with the intention of converting it to serviced accommodation. Failing to adhere to planning regulations and insurance requirements can lead to serious repercussions, including defaulting on mortgage payments.
Local Authorities and the '90-Day Rule'
As you venture into the world of serviced accommodation, local regulations come into play. Some areas have imposed limitations on the duration of property rentals. The infamous '90-Day Rule' restricts rentals to a maximum of 90 days per year. It's absolutely crucial to comply with these regulations; attempting to sidestep them can lead to significant complications. To ensure a smooth operation, make sure you're well-versed in your local area's rules.
Guarding with Comprehensive Insurance
Comprehensive insurance is a non-negotiable aspect of your serviced accommodation journey. Adequate insurance coverage safeguards against potential risks, such as fire. It's essential not to cut corners here. Having the right policies in place and communicating your intentions to everyone involved is crucial. Opt for specialised serviced accommodation insurance tailored to your unique needs.
Unveiling Potential Properties
Finding the right properties for your serviced accommodation venture doesn't have to be a daunting task. In many cases, properties suitable for serviced accommodation can align with those you'd consider for quality buy-to-let options. Rather than approaching estate agents with specific serviced accommodation requirements, focus on sourcing well-crafted buy-to-let properties. Often, these properties can be seamlessly adapted to cater to the needs of your serviced accommodation guests.
Understanding Your Audience
Understanding your target demographic is key. Are you situated in city centres, competing with budget hotels? Or are you nestled in an area known for tourism, catering to holidaymakers seeking a comfortable and memorable stay? Tailoring your offerings to your intended audience is paramount, as different types of guests seek different types of properties.
The Versatility Advantage
One of the standout advantages of this approach is its inherent flexibility. If serviced accommodation doesn't yield the expected returns, you're not left high and dry. You can seamlessly transition back to buy-to-let, ensuring you always have a Plan B. This adaptability makes your investment strategy robust and resilient.
Forging Collaborations
Collaborative deals with fellow landlords and investors offer another intriguing avenue for sourcing serviced accommodation properties. For instance, you might consider acquiring properties from those affected by legislative changes like Section 24. These properties, originally designed for long-term rentals, can be easily tweaked to accommodate the serviced accommodation model.
Another approach involves renting properties from other landlords or property owners and then subletting them as serviced accommodations. This strategy can offer a win-win situation for all parties involved.
The Final Verdict
Serviced accommodation holds immense promise, provided you approach it strategically. Creating an appealing, visually enticing space inside and out is essential to attracting the right clientele. Those captivating photos you upload to platforms like booking.com or Airbnb are your initial handshake with potential guests – make sure they're captivating! By striking this balance, there's no reason why serviced accommodation shouldn't emerge as a fruitful investment strategy.
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