Serviced accommodation may be the topic that is on every investor’s lips but that doesn’t mean it’s right for everybody. While a traditional buy-to-let only requires a new tenant every 18 months on average, managing serviced accommodation is far more time intensive.
Therefore, investors should think carefully about whether serviced accommodation is something that is going to enhance their portfolio or just lead to unwanted stress.
To help you do this, below are some of the telltale signs that serviced accommodation is right for your portfolio. Count up how many apply to you and find out if you should be investing.
The first step to serviced accommodation success is choosing the right location for your property. Typically, serviced accommodation is most successful in city centres where there is a strong business and tourist trade year round, as this will mean you have a consistent pipeline of guests.
As such, it is always useful if part of your portfolio is already in one of these locations so you have some experience of the market. This becomes even more key if you’d rather convert one of your existing buy-to-lets into serviced accommodation, rather than buy a new property.
Everyone has to start somewhere, so having no experience in serviced accommodation doesn’t have to be a major concern. However, you should have a good amount of buy-to-let experience already.
This is vital if you hope to manage your serviced accommodation yourself. Ongoing maintenance to the property needs to be done quickly so it is on the market for as long as possible, and there are a host of other services you may need to organise, from cleaning to ‘value added services’ like airport transfers.
Organising all of this is a big logistics challenge, but is made far easier if you already have buy-to-let experience and contacts you can call on for help.
Landlords can occasionally get a bad reputation for not keeping their properties in the best condition, but this is not an option when it comes to serviced accommodation.
Guests will have dozens of properties to choose from, so you have to be willing to go the extra mile to beat your competition. That means high-quality furnishings and regular maintenance to ensure it always looks brand new.
When renting out a buy-to-let property, you may only have to speak with your tenant a few times a year. When it comes to serviced accommodation, you’ll be dealing with guests far more regularly and at more unsociable hours. After all, if you’re renting to a tourist who’ll arrive at 10pm, you need to be there to let them in.
This is just one example of the increased management you need to be prepared for. If you’d rather avoid this, you can hire a company to manage your property for you, though this obviously comes at a cost.
An increase in guests means an increase in void periods, so if you think having an empty property is going to keep you up at night, serviced accommodation might not be for you.
Of course, these void periods are generally short and the higher rent prices more than make up for them, but you still need to be mentally prepared.
This is especially true if you expect the majority of your guests to be made up of tourists, which may lead to higher demand in summer, and lower demand in winter.
Setting a property up as serviced accommodation is, unfortunately, more complex than just putting it on a hosting site. You’ll likely need a different mortgage, insurance and planning permission then you would if it were a standard buy-to-let, which means some extra paperwork.
If you’re managing it yourself, they’ll also be much more admin when it comes to looking after a higher number of guests.
Speaking of mortgages, in order to use a property as serviced accommodation you’ll most likely need a commercial mortgage or a dedicated holiday let mortgage.
If you’re buying a property, be prepared that you’ll need to put down a larger deposit to secure your financing. Deposits typically start around the 25% mark and can go as high as around the 40% mark.
It’s always worth seeking more information and the services of a specialist broker.
By now, it should be pretty obvious that investing in serviced accommodation is more complex than your traditional buy-to-let. In reality, running this type of property is very similar to running a business.
You need to keep a careful eye on current and projected turnover, have a clear strategy for marketing your property and keep up with market trends in your location and the wider industry.
For that reason, serviced accommodation is best suited to individuals with a business mindset who are able to give it the attention it needs. Yes, you can use a management company look after your property for you, but you’ll still need to keep careful track of it yourself. Otherwise, it would be like a business owner having no idea what was going on at their office.
There are many factors that go into deciding whether serviced accommodation is right for your portfolio, but hopefully, the ones listed in this blog have given some insight.
If five or more of the statements above apply to you, there’s a good chance that you could incorporate serviced accommodation and begin to benefit from its higher rental yields and tax advantages.
If you scored less than five, it’s likely that, at least for now, sticking with buy-to-let is the right strategy. That doesn’t you shouldn’t explore serviced accommodation again in the near future, so if you’re considering purchasing another property, ensure it’s one that allows serviced accommodation as part of its lease.
Of course, the only way to truly tell you whether serviced accommodation is right for your portfolio is to speak with you and learn about your property goals and aspirations. With that in mind, feel free to get in touch to learn more.
If you’ve finished this blog and you’re still not sure whether it’s right for your portfolio, why not learn more by downloading our free Guide to Investing in Serviced Accommodation.