Property investment success is not just limited to the traditional buy-to-let structure and when considering alternative options some might wonder if a serviced accommodation property strategy is good for investors?
The serviced accommodation property strategy is a relatively new one and might appeal to some investors as it can deliver excellent rental returns.
If you’ve bought or are in the process of buying a property in a prime location that would work well for serviced accommodation it might be a strategy you want to explore.
What is serviced accommodation?
Serviced accommodation is the term used for a fully furnished self-contained property which is available to let for both short and long term and might provide services similar to those offered by hotels such as regular cleaning and access to the building’s facilities if there are any such as the swimming pool, gym or spa.
Serviced apartments can often be found within residential buildings and may or may not have staff on-site so the operator will arrange to meet guests at arrival, have a safety deposit box or in some instances, they might offer keyless entry.
Serviced accommodation should not be confused with ‘short term lets’ which can be set up using several types of legal agreements such as an Assured Shorthold Tenancy agreement. When letting a property as serviced accommodation the arrangement is more akin to that of a hotel.
This type of accommodation has primarily been popular with business travellers and corporate relocations and is often simply added to the ‘apartment’ category on hotel type accommodation booking website portals, in reality, serviced accommodation is much more than simply an apartment.
Serviced apartments are increasingly viewed as a credible and cost effective alternative to hotels. They’re perfect for longer stays and for when it’s more appropriate to have all the facilities you’d have at home and live more like a local.
Serviced accommodation falls under the same classification as furnished holiday lets (FHL) meaning it is subject to the same planning rules and taxation. There are benefits to furnished holiday lets as we highlighted in our blog: Is a holiday let better than a buy to let?
What does serviced accommodation include?
For landlords, it’s useful to clarify exactly what is included or expected by those staying in the property.
Essentially serviced accommodation provides a home from home and in the majority of cases, all taxes and utilities are included within the rental price.
Serviced apartments will offer privacy and convenience which is why they appeal so greatly to business travellers who are staying in a location for more than just a few days. Equally serviced accommodation can appeal to those who are staying for a very short period if they’d prefer to have more space and the ability to cook their own meals.
Guests will expect a serviced apartment to have certain features:
- One or more bedrooms that are separate to the living area or in a studio apartment a clear, designated sleeping area
- A fully equipped kitchen that includes everything needed to store and prepare food. Pots, pans, plates and cutlery will all be present. A dishwasher and washer/dryer are usually expected to feature.
- There should be a TV, WiFi and often desk space facilitating home working.
- All utilities, i.e. water and electricity, should be included in the cost
- There is often a frequent housekeeping service, many operators arrange this to be weekly.
Why are serviced apartments popular?
If you’re considering investing in this type of property strategy or letting your investment as a furnished apartment for rent then you should be interested to learn the fundamental reasons why these types of properties are so popular.
As we’ve already highlighted serviced accommodation offers a home from home that is unachievable in a hotel but importantly it will be much more spacious.
On average, it is reported that a furnished apartment will provide 30% more space than a hotel.
Guests enjoy the ability to work, relax, cook and sleep in a space they can call their own during their stay.
Guests will often see the value in serviced apartments as prices tend to be around 20% less than that of an equivalent hotel stay. Furthermore, there are usually no hidden costs such as the minibar or room service that will be added to the bill at the end of a stay.
Another key benefit is that for longer stays the VAT reduces to just 4% after 28 nights, so those staying for an extended period can really make the most of the available savings.
Flexibility is one of the factors that make serviced accommodation so popular as it allows guests to function on their own schedule. There is the ability to cook whenever they like, work or even potentially have a meeting or guests in a private space at a time that works for everyone.
With larger serviced apartments the bedrooms and bathrooms will all be separate meaning colleagues or groups travelling together can have their own space and come and go as they please. Not limited to corporate guests, families often find serviced apartments work well for their needs.
Whether it’s with young children who might need naps or meals prepared outside of the usual mealtimes or the ability to have the children in their own bedroom as they would be at home – furnished apartments are an ideal option.
You’ll find serviced apartments in most city centres around the world – they’re usually positioned in the best locations near to business districts or tourist hotspots, near to transport and amenities.
Being in a prime location is another reason serviced accommodation is so popular.
Privacy and security
Having a self-contained space generally allows guests to enjoy the privacy that they wouldn’t be able to enjoy in a hotel. Guests are often drawn to the ability to really make themselves at home during their stay and a reduced maid service means they’re rarely interrupted.
In addition to privacy, serviced accommodation will often offer a high level of security to guests being private, self-contained properties. In modern buildings, there might be secure entry, CCTV, a porter and 24 hour security.
Are serviced apartments a good investment?
The serviced apartment sector has grown considerably over recent years and has been outpacing hotel room investment.
According to a report by global real estate agent Savills which focused on the European Serviced Apartment Market, serviced accommodation has fared better than hotels throughout the pandemic in terms of occupancy levels.
Whilst serviced apartments were not entirely immune to the demand drop caused by Covid-19 the sector is set to recover the quickest and see a 41% rise in serviced apartment RevPAR (revenue per available room) over the course of the year.
Overall the lower operating costs combined with longer average guest stays supports the case for serviced apartments as a good investment.
What are the drawbacks to investing in serviced apartments?
Renting a furnished apartment has the potential to be part of a very profitable property strategy. As with all investments, there are a few risks investors should be aware of:
- Void Periods: Perhaps one of the greatest worries for landlords considering serviced accommodation is void periods. A void period is a stretch of time when no one is letting the property, it will be sitting empty and not producing any income whilst potentially incurring continuous costs in the form of service charges.
o Thankfully due to the flexibility of the set-up, serviced apartments appeal to both short and long term renters meaning it’s easier to find tenants.
o Where you buy will have an impact on success – the location needs to be convenient and appealing to a constant stream of tenants.
- Mortgage restrictions: If you have a mortgage, before you begin renting as a serviced apartment you need to check that the terms of the loan permit this.
- Lease restrictions: If the property is a leasehold you’ll need to check the terms of the lease to ensure serviced apartment short term lets are permitted.
- Hard work: If you lived nearby and chose to manage your furnished apartment rentals personally there is going to be considerable work involved – it’s not dissimilar to running a B&B. For the most part, those letting their properties as serviced accommodation choose to employ a management service.
How do I set up serviced accommodation?
The best and most effective way to set up serviced accommodation is to engage with a professional team who can oversee the property, manage guests and the upkeep.
That way you’ll know that a professional organisation is overseeing every element, especially useful if you have no prior knowledge of the industry and do not have the time or aren’t local.
If your property was previously let as a long term rental it’s possible you’ve already furnished the property adequately but if not you’ll need to fully furnish the property. For a serviced apartment you’ll also need to supply bed linen, cutlery and everything required to create a home from home. A management company can assist with ensuring you have everything in place ready for paying guests.
It’s also important to make sure you have the right insurance in place.
Serviced accommodation vs buy-to-let
If you’re comparing serviced accommodation vs traditional buy-to-let there are a few key differences of note.
Length of let
With a serviced apartment the ‘let’ could be as short as one night, it could also be as long as 6 months in some cases where a contractor needs to be close to a place of work for an extended period.
The beauty of renting a property as a furnished apartment is flexibility.
A traditional buy to let property on an assured shorthold tenancy (AST) has to have a minimum term of 6 months making it a very rigid agreement.
Serviced accommodation is a preferred cheaper alternative to a hotel and is usually compared to a hotel rather than a long term rental property.
This is because a serviced apartment will be fully equipped with everything down to the pots, pans and cutlery and there will be regular cleaning included – not things that have to be thought about with a standard buy-to-let property.
One of the greatest appeals of letting your property as a serviced apartment is the rental income that’s achievable.
For example, on a standard long-term let you might receive a monthly rent of £500 for your property, comparably as serviced accommodation that same property would rent for £80 per night.
And it would likely still be cheaper than the hotel down the road that probably costs around £120 per night.
Whilst void periods are one of the concerns with serviced accommodation, to reach the same rental income as the monthly figure of £500 with a nightly charge of £80… you would only need to let the property for 6 nights in a month.
Change your buy-to-let to a serviced apartment
If you own a property in a prime location that is convenient, accessible and will appeal to short-stay guests then it’s well worth exploring changing your buy-to-let into a serviced apartment.
If your property is already fully furnished you’re already a step closer to it being suitable for guests, the property needs to be set up similarly to a hotel. Landlords will need to install a good TV, bedding and towels, fully equip the kitchen with pots, pans, plates and cutlery and in most cases supply tea, coffee and milk just as guests find in a hotel.
Things to think about:
- Who’s going to manage bookings?
- How will the guests get into the property?
- Who will do the laundry?
- Who will do the cleaning?
- Will somebody meet and greet guests?
There are companies that can oversee your property as serviced accommodation, they’ll manage the guest bookings, changeovers, letting guests into the property and cleaning the property at changeover and regularly for longer staying guests.
Should you invest in serviced accommodation?
With the changing demands from guests seeking a place they can not only stay but have space to work from their accommodation, a serviced apartment comes with new benefits previously underrated. Furthermore, with the lettings being for shorter periods it will be entirely possible for the owner to make occasional use of their property should they wish to, which might be very happy if you intend to infrequently visit a location where you own an investment property.
As is the case with any type of investment, whether you should invest in serviced accommodation is a decision only you can make based on your personal circumstances and aspirations.
Property investment comes in many shapes as sizes, investors are often focused on the property and capital growth and follow the tide when it comes to how the property is let.
As a property strategy, serviced accommodation has the ability to earn a far higher rental income than properties that are let on a longer basis. If the accommodation is in a prime location the risk of void periods will be mitigated.
To answer, should you invest in serviced accommodation? We’d definitely suggest you explore it as an option.
If you’re interested to learn more, please do get in touch.