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.
So, it all sounds pretty good, but what are the downsides?
- Well, 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 intensive. In fact, in some ways, if you think about it, serviced accommodation is much like a little B&B, but perhaps, just without the breakfast. In fact, an alternative name for serviced accommodation could be holiday lets, because in many, many ways, they are very, very similar, if not identical to the whole concept of a holiday let.
- So, you’ll probably want to set your accommodation up a bit like a hotel. You’ll need to furnish it. Now, depending upon where you are in the country, and depending upon what your tenant profile is, you may furnish your buy-to-lets, anyway. But this is going to vary. For example, I have a portfolio in the Northeast of England, and none of my properties in the Northeast are let-furnished. The local market doesn’t expect the properties to be let-furnished.
But it could be that in your area, buy-to-lets are furnished. Regardless of that, you are going to furnish your serviced accommodation. You’re going to need to provide all the furniture. You might want to put in a nice TV. You are going to be providing bedding. You’re going to be providing towels, tea, coffee, milk and biscuits for your guests for when they arrive, it’s a bit like a nice hotel. Just think of it, really as being a hotel, and you’re providing hotel rooms, because that’s the closest equivalent.
Like any hotel, you’ll need to clean the rooms and change the linens every time your guests leave. Or, if they are for there for longer periods, you’ll need to have a cleaner in, and change the linen on a regular basis while your long-term short-term guests are there. So, you’re going to need to think about:
- Who does all the laundry?
- Who does all the cleaning?
- Who’s going to do all the work for you?
- How are the guests actually going to get in?
- Are you going to have somebody to do a meet and greet?
- Are you going to have like, a little key box, where perhaps you punch in a code a bit like a safe, and they can get the keys out of that, which could be a way of doing it?
All of these things need to be thought about particularly, if you’re taking bookings over, say, booking.com or Airbnb, something like that, where somebody could literally book just minutes before they turn up. If somebody books your serviced accommodation at 10 o’clock at night, how they’re going to get in? All these things need to be thought about.
So, with all of these in mind, you’d probably going to need a team in place to support you. Unless of course, you do it yourself, in which case, this will be highly management intensive for you. You’re really creating yourself another job, and not an investment. But you know the returns are so good, you may say, well, Peter, I don’t mind that, because it’s just a matter of going out a couple of times a week to let somebody in. I don’t mind doing that, because the amount of income that those properties are generating, makes it well worth my while.
So, there’s more than one way of doing this. There are several models within this strategy, that you could adopt. For example, you could choose to have a model, where you effectively have, say, a single house that you let as a single entity. So, you let out the whole property once. Maybe, it’ll be let to a family, and you could let the whole property. Or, you could have a single house, which you could almost operate like, a mini HMO, where perhaps you let each room separately. Or, perhaps you could have a house, which you turn into apartments. There are different ways of doing it.
But you want to be very clear as to how you’re going to be doing it, because you’re probably going to be looking for a different type of clientele. If you have just single rooms, which you’re letting out, it is going to be more like a hotel. If you’re letting out a house, which has got multiple bedrooms, but you’re letting it to, say, one family, then you’re looking for a different type of a guest.
I know as I said earlier, a lot of operators in serviced accommodation market, for example, get very excited about contractors, where you could have contractors sharing the house. They didn’t really matter though, if they just want to have single rooms, and they have a room each. It’s up to you really to decide how you want to provide it, and how the property is going to work best for you.
One thing, which you do need to be aware of, if you’re going to get into serviced accommodation, is that you’re going to need planning. Because one of the Planning Acts for this type of property, would not be considered to be a normal residential property. It’s really a holiday let. For planning purposes, that’s pretty much how they’re going to treat it.
So, you’re going to need planning consent. That’s going to impact and affect other things, such as how you finance the property. So, when it comes to finance in serviced accommodation, the type of finance that you need, is going to be different from the type of finance should you use for a buy-to-let. You’re going to need a commercial mortgage. And please let me just implore you here, please don’t go off, and buy a property using a buy-to-let mortgage, but with the intention of using it as serviced accommodation. Don’t then ignore the planners. We’re going to think about insurance in a moment. But make sure you’ve got the right insurance. Please do it properly, because if something goes wrong, you’re going to be in big trouble.
If you go off and buy yourself a property using a buy-to-let mortgage, intending to use it for serviced accommodation, and your mortgage lender finds out, they’re rightly going to be quite upset with you. They’re probably going to ask for their money back, which could be rather awkward and slightly embarrassing.
Serviced accommodation can be a great strategy. A lot of investors are doing very, very well. It’s about choosing the right properties. It’s about understanding who you’re going to be letting the property to. It’s about making the property attractive enough that people actually want to go and stay there. One of the key things to do, is, to make sure that it is nice, and that the photographs that you put up on booking.com or Airbnb, or wherever you advertise it, make the property looks nice so that you attract the right clientele, and you attract lots of clientele. But, if you can do that, that’s absolutely no reason why serviced accommodation shouldn’t be a great strategy for you.
That’s a quick walk through of the serviced accommodation industry. Another strategy you can consider. But remember, don’t concentrate on just one strategy. We think it’s a good thing to actually sort of spread yourself a little bit. All depends on how you feel about it, and depending on what else you want to do.