What is Serviced Accommodation?
Let’s take a look at what serviced accommodation actually is.
Now, unlike a single-let buy-to-let, with serviced accommodation, you essentially let a property out on a short-term basis. You let your property out to what we’ll call guests rather than tenants, because you’re letting the property out usually, by the night or at least on a short period of time.
So, rather than we would say a buy-to-let, where you have a 6-months tenancy or a one-year tenancy, you may be letting out your serviced accommodation literally for one night, or it could be for a weekend, or you can actually have long-term short-term lettings. I know of many people who’re involved in the serviced accommodation sector, who get very excited, for example, when a contractor comes along, they want to take the property for 6 months. You can do that as well.
So, all things are possible. The thing is, it’s very flexible. It’s not as rigid as a buy-to-let, where you have to have a 6-month AST, assured shorthold tenancy as a minimum.
Quite often, the type of property that’s used for serviced accommodation is the same sort of property that you would use for a buy-to-let or a single-let. However, when it’s used as a serviced accommodation, the type of property although it’s the same, it’s going to generate much higher returns. Why? Because the type of fees, which we could call rent, which you can command for per night or per short stay, will be proportionately far greater than the amount you can charge for a 6-month or a year tenancy.
So, for example, it may be that, if your serviced accommodation unit is a typical sort of standard buy-to-let, you may get, £500 a month for it, depending upon where it is in the country. But you may be able to charge something like, £80 per night for it, if you’re using it for serviced accommodation. Now, of course, you’re not going to necessarily have it occupied every night. But you only need a fairly decent occupancy rate for those £80 per night to be more than the £500 per month, that you get on assured shorthold tenancy.
1. If you plan to stay at a place for a long period, service apartments are cheaper than staying in hotels. Major reason why companies rent serviced accommodation for some of their employees who will be having a medium to long stay. For example, a 5-month training program
2. For the best services and value for money, serviced accommodation is the best option
3. If you are leasing out serviced accommodation, it provides you with funds you need to maintain your property
4. Serviced accommodation appeals to a large pool of tenants, most of whom will prefer it rather than deal with fluctuations in property prices when buying or renting on the open market
1. Getting cost capital is one major problem with serviced accommodation. However, some mortgage lenders will lend with a low percentage of the purchase price, some won’t lend at all.
2. Since serviced accommodation is usually leased for long periods, they can only be sold to investors.
3. Most serviced accommodation has poor capital growth.
4. Some mortgage lenders put serious restrictions on how many times / how long you can use a property for serviced accommodation purposes.
Two ways to handle serviced accommodation:
1. Having short-term tenants that will stay for a maximum of 5 days, then, charging them premium rates. A major disadvantage of this option is that you will have less certainty in your occupancy.
2. Planning contracts with firms who would need accommodation for their contractors or consultants. A disadvantage of this option is that you have to offer a better rate, but your occupancy would be more certain.
If you don’t mind charging less than premium rates, then, the second option is better and if you are able to sign a secured long-term contract with these firms, it can be a highly profitable investment for you. It is also profitable for the company because they can get a significant reduction in one of their fixed costs.
As soon as you can make healthy profits in providing a valuable and growing service, you need to research and plan carefully because as with anything else, this type of investment also has its’ own risks. You must understand the rules and guidelines before going into it.