In this series, we’ve been taking a look at the different strategies that we can pursue in property – and this week, we’re going to think about Serviced Accommodation. To be completely transparent and honest with you, this isn’t something that I personally do myself, however, it is worthwhile thinking about because there are many investors out there that are generating exceptionally high returns from this strategy.
To start off, let’s think about what serviced accommodation actually is. Unlike a single let or a buy to let, with serviced accommodation you essentially let a property out on a short-term basis to “guests” rather than tenants, usually by the night (or for a short period of time) rather than granting a six month or one year tenancy.
Quite often, the type of property you would use for serviced accommodation is the same sort of property that you would use for a buy to let or single let – however, when used as serviced accommodation, this type of property would generate returns that are far higher. Why? Because the type of fees that you can command per night (or per short stay) would be proportionately far greater than the amount you could charge per month for a 6-month or yearly tenancy.
So, what’s the downside? In many ways, serviced accommodation is more of a business strategy than a property strategy in that the amount of work that you need to do is much more. (Serviced accommodation is much like a little B&B, just without the breakfast).
With this in mind, it’s likely you’ll need a team in place to support you. Unless you do this yourself – in which case it will be highly management intensive – you’ll need people that can come in to do the cleaning, changing of the linen… and so on.
There are many models within this strategy; for example, you might choose to have a model whereby you effectively have a single let house that you rent out as a whole property, or you could have a single let house which works almost like a mini HMO where by you let each room separately.
If you are to run the property where by you rent out each room individually, then you need to be aware that this requires planning. Under the Planning Act, this type of property would not be considered a normal residential property so you would need planning consent and would have to give consideration to things like security and how the shared facilities would be allocated between the different rooms. Whilst this does sound slightly more complex, you would find that the return on the money that you spend on the property would be far greater.
When it comes to finance and serviced accommodation, the type of finance that you would need would be different from the type of finance you would use for a buy to let. You would need a commercial mortgage and would need to have the right insurance in place too.
One stumbling block with serviced accommodation could be the Local Authority. Some Local Authorities are opposed to short term lets and prefer to have properties that give people access to accommodation for longer periods of time. Some Authorities actually have a 90-day rule in place that prohibits properties from being let out for more than 90 days. So, this is something to consider if you are thinking of doing serviced accommodation in your area where this rule is in place.
However, if it is possible and if you can make your model work effectively, then fantastic returns can be generated from this type of strategy. What’s more, as a model that is rather like a holiday let, there CAN also be some tax breaks – so, get it right and it can be very worthwhile indeed.
Here’s to successful property investing
Peter Jones B.Sc FRICS
By the way, I’ve rewritten and updated my best selling eBook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to ThePropertyTeacher.co.uk