Unlocking the Secret of Serviced Accommodation Investments
Are you looking to invest in serviced accommodation within the UK, but don't know where to start? Well, you've come to the right place! We will unlock the secret of serviced accommodation investments and answer all of your questions. We'll explore the risks and rewards, why you should invest in this model, what type of rental yields you can expect, and the best methods for making a short-term let successful. Plus, we'll look at the potential tax benefits of running a serviced apartment. So, if you're interested in learning more, read on!
Understanding Serviced Accommodation Property Investment
Serviced accommodation property investment may seem complex, but once you understand the basics, it can open up a world of opportunities. So, let's dive in and unravel the mystery of serviced accommodation investments.
In simple terms, serviced accommodation refers to fully furnished, self-contained accommodation that comes with hotel-style services. It serves a variety of markets, including tourists, business people, and contractors, offering them a comfortable and convenient alternative to traditional hotels.
Serviced accommodation falls under short-term letting, where guests can stay for a few days, weeks, or even months. Three main types of serviced accommodation are serviced apartments, apart-hotels, and corporate housing.
Serviced apartments are standalone apartments that offer all the comforts of home, including separate bedrooms, living areas, and fully equipped kitchens. They provide privacy, flexibility, and the feeling of living like a local. With serviced apartments, guests have the freedom to cook their meals and enjoy spacious living areas, making them a popular choice for families and groups.
On the other hand, apart-hotels combine the benefits of a hotel and an apartment. These properties typically feature self-contained suites with hotel-like services such as daily cleaning, 24-hour reception, and concierge facilities. Apartments offer the convenience and amenities of a hotel, along with the comfort and space of an apartment.
For investors looking to cater specifically to the needs of travellers, apart-hotels provide a unique advantage. They offer a seamless and hassle-free experience for guests, ensuring they have everything they need during their stay.
So, whether you're considering investing in serviced apartments or apart-hotels, understanding the different types of serviced accommodation can help you make informed decisions and tap into a lucrative market. Stay tuned as we delve deeper into the risks and rewards of investing in serviced accommodation in the UK!
Risks and Rewards of Investing in Serviced Accommodation
Investing in serviced accommodation can offer significant rewards, but it is important to be aware of the potential risks involved. Before diving into this market, it is crucial to thoroughly research the market conditions, regulatory environment, and operational requirements specific to serviced accommodation in the UK.
One of the main risks of investing in serviced accommodation is the potential for fluctuating demand. Market conditions can change quickly, and factors such as seasonality, economic downturns, or unexpected events can impact the demand for short-term rentals. It is essential to have a solid understanding of the local market and its trends to ensure a steady stream of bookings.
Another risk to consider is the need for ongoing maintenance and upkeep of the property. Unlike traditional buy-to-let properties, serviced accommodation requires more regular cleaning, maintenance, and furnishing updates to ensure guest satisfaction. This can result in higher operational costs and time commitment.
However, the rewards of investing in serviced accommodation can outweigh the risks for those who approach it with careful planning and execution. The potential for higher rental yields compared to traditional long-term rentals is a major attraction for investors. With the rise in popularity of platforms like Airbnb, short-term rentals can generate a higher nightly rate, resulting in increased profits.
Additionally, serviced accommodation offers greater flexibility and versatility. As an investor, you can adjust the pricing, availability, and target market to maximise returns. The ability to adapt to changing market conditions and adjust your strategy accordingly can be a significant advantage.
To mitigate the risks and maximise the rewards of investing in serviced accommodation, it is crucial to have a solid business plan in place. This includes considering factors such as property location, target market, marketing strategies, and operational costs. It is also advisable to work with experienced professionals, such as a property management company, to ensure the successful operation of your business. Their expertise can help streamline the process, optimise occupancy rates, and handle day-to-day operations, allowing you to focus on growing your investment portfolio.
Serviced Accommodation Walkthrough
Here is a short clip of everything you need to know when sourcing this type of property management, we will dig into the financials including the tax benefits.
Tax Benefits for Serviced Apartment Operators
Serviced apartment operators have the advantage of benefiting from tax deductions in the UK, this includes all associated running costs for the property including set-up fees such as furniture packages, management fees, utility bills etc, all tax deductable. The government recognises the value of this growing sector and offers tax relief to support operators in their ventures. This tax relief can be up to £1 million per year, providing a significant boost to your bottom line returns. What's more, this relief is available for a period of up to 15 years, allowing you to enjoy long-term tax benefits.
Whether you're a new operator looking to start your serviced accommodation business or an existing operator looking to expand, you can take advantage of this tax relief. It's a fantastic opportunity to reduce your tax liability and reinvest those savings back into your business.
The tax relief available for serviced apartment operators is a game-changer. It's a tangible benefit that can help you grow your investment portfolio and maximise your returns. So, when considering your investment options, don't overlook the potential tax benefits that come with running a serviced apartment. It's a win-win situation for both your business and your financial future. for further information on the tax benefits please click here for the dedicated page on buy-to-let tax.
Keys to Success for Short-Term Letting
Short-term letting is a lucrative business, but it comes with its own set of challenges. To ensure success, there are a few key factors to keep in mind. First and foremost, understand that short-term rentals typically last from one week to six months and include all bills, furniture, and amenities. This provides convenience and flexibility for guests, attracting a more comprehensive range of potential tenants.
Secondly, with second home ownership jumping by 30% since 2000, it's essential to protect your property with contents insurance. This ensures that any damages or losses caused by guests are covered, giving you peace of mind.
Furthermore, short-term landlords need to jump through legal hoops. It's essential to familiarise yourself with local regulations, obtain any necessary licenses or permits, and comply with safety standards. This will help you avoid any legal issues down the line.
Consider outsourcing to a professional property letting management company. They can handle the day-to-day operations, including guest bookings, check-ins, cleaning, and maintenance. This frees up your time and ensures a seamless experience for your guests.
Don't forget to take advantage of the government's Rent a Room scheme, which allows you to earn up to £7,500 tax-free per year. This is a great way to boost your rental income and maximise profits.
When it comes to the property, make sure it's neat, tidy, well-furnished, and well-presented. Guests expect fast broadband and smart devices, so ensure these are available. Additionally, smoke detectors and fire extinguishers should be fitted for the safety of your guests.
Lastly, be proactive with repairs and maintenance, and always charge a security deposit. Even though guests may only be staying for a few days, it's essential to have a security deposit in place to cover any damages or violations of house rules.
By following these keys to success for short-term letting, you'll be well on your way to running a profitable and thriving serviced accommodation business.
What would it look like?
This is a property we got involved with whilst, under construction, our clients secured sold out and are currently available to book as an STL, you will find it is fully furnished and everything that is needed for visitors as if they just moved in themselves, we do also have furniture package providers through a 3rd party to make sure your property looks the part when bookings commence of course you can always compare packages online.
Average spend on 'staycation' summer holidays according to Britons in the United Kingdom (UK) from 2011 to 2021(in GBP)
© Statista 2022
Further information you may need to know
1. What deposit is needed?
The deposit needed varies depending on the property or developer's requirements. Generally, a 25% deposit is needed. However, if the property is under construction, the deposit amount might differ. If the property is already complete, the deposits can be flexible, and it can depend on your preference to finance through cash or mortgage. Our experience suggests that financing through a mortgage is the most popular method.
2. Why not buy something already completed?
Most of the leases with apartments for old buildings only allow ASTs. Thus, it's tough to find a property that fits this model. On the other hand, purchasing a residential property brand new ensures that the leases are current and adaptable to the times, providing flexibility on how you let it. Although we have dealt with completed re-sales in the past, catching one requires good timing and a little bit of luck.
3. What do the figures look like?
The price range of these residential properties varies depending on their location, ranging from £90,000 up to £400,000. Conservatively, you can achieve 9% Net against the price you pay, and it can go up to 15% Net if you choose the right property in the right area.
4. What if I already own a property in a good area?
If you already own a property in a good area, it's best to conduct research before making any decision. Contact us to find out if the property will work for this model, or you can gauge the nightly rates in your area using Airbnb. If you decide to manage the property on your own, consider how you'll advertise, take bookings, and most importantly, keep the property clean and maintained. Check the lease restrictions if your property is on lease.
5. What happens if we face another pandemic?
During the pandemic, businesses still needed to operate. Construction workers, delivery services, NHS, and factory workers, among others, needed short-term accommodation. Thus, short lets were still in high demand during the pandemic.
6. Damages and Maintenance?
This model is popular because it requires little maintenance. Weekly inspections and cleaning are enough to keep the property in excellent condition. Landlords who've owned a property for five years can still maintain its brand-new look. Depending on your management team, it's essential to take large deposits and maintain security measures with proof of ID, addresses, banking information, and insurance for corporate bookings. Public liability insurance is always intelligent to have in place.