Month: December 2019

Serviced Accommodation: Should You Get Involved?

Many of us will have heard of serviced accommodation, but today’s blog will take a more in-depth look into it and whether it could be a strategy for you to get involved in.

Traditional buy-to-let properties are a familiar concept for many of us, where you rent out an apartment or house to a tenant on a long term basis. Serviced accommodation is a little different from this, as you rent your apartment or house on a short term basis. In effect, the property you rent out is effectively a small hotel, as guests can stay anywhere from one to two nights for months at a time. 

Serviced accommodation has become a topic of debate in recent years, with lots of media attention surrounding AirBnB. AirBnB is a business that advertises serviced accommodation but has become the go-to company when looking for holiday accommodation. Other companies advertise serviced accommodation, such as Booking.com, Hotels.com, Spotahome etc. but we often hear AirBnB being discussed.

Serviced accommodation has many benefits for individuals travelling for work or pleasure. Benefits for the end-user are:

• A home-from-home setting
• Hotel standard services but more homely than a hotel room 
• Space: more space to enjoy, e.g. bedroom, living room etc
• Convenient: guests can prepare food (properties have kitchen facilities)
• Often apartments will have laundry facilities (washing machines and dryers)

Serviced accommodation is becoming ever more popular for business travellers as it gives them more for their money than staying in a hotel. Companies tend to favour serviced accommodation for their workers as it is often cheaper to stay in serviced accommodation than hotels, mainly if the length of stay is weeks to months. Business users will be more likely to do their laundry, cook their meals, and generally expense less when staying in serviced accommodation in comparison to staying in a hotel.

You’re probably wondering what’s in it for me?

With serviced accommodation becoming more popular, the prices charged per night are comparable to guest houses and hotels nearby. When you compare the income generated through a typical buy-to-let where your property is rented out to one tenant long term for, say £800 per month in comparison to renting your property per night for £60 a night in low season to £120 a night in high season, you can see why many investors are leaning towards serviced accommodation. It doesn’t take many nights of renting your property out per night to overtake the traditional buy-to-let rent. 

So why doesn’t every landlord switch to serviced accommodation?

There are some considerations when looking into serviced accommodation. As we mentioned earlier in the article, you are technically running your rental property as a mini-hotel.

Bookings: You will need to advertise your property on multiple different websites to ensure it can be booked by a range of guests from holiday goers to corporate business clients. You need to create a listing and upload photos and reply to any questions or enquiries you receive through the various platforms.

Changeovers: You are running your rental property as a hotel; therefore, you will need to get the property changed over between guests. Linen will need changing, the whole place will need to be cleaned from top to toe, and you’ll need to replace consumables (toilet rolls, toiletries etc), take bins out, and check for damage or repairs.

Check-ins: Guests will arrive when it’s convenient for them; therefore, you need to make arrangements to let them into the property, or use a key safe. Remember, no matter how simple you make instructions, there will be the odd guest who struggles to enter your property. Imagine a late-night call from a guest who has been for dinner and a glass or two of wine asking you to help them enter your property at midnight (or later).

Furnishing: While you could technically buy a rental property and put in any old furniture, the price you can charge per night for guests to stay will be higher if your property is kitted with higher quality furniture. Pick a few statement pieces of furniture to give your property a luxurious feel and make your property stand out from other similar properties, which will attract attention to your property and likely increase your bookings. High-quality fixtures and fittings will withstand the test of time too, so spending money on quality furnishings upfront is a double win.

Location: Location location location. It’s something that all potential investors or current landlords must consider when researching property to buy for serviced accommodation. If a property you’re looking to purchase or currently own is located in a rural location, it can be more complicated to manage as serviced accommodation. One particular sticking point for managing properties in rural areas is the availability of laundry services for all the bed linen you’ll need if your property turns over every night. 

As you can see, there’s a lot to organise with serviced accommodation. For many landlords, this would be too big of a time commitment. It’s pretty much the same as running a bed and breakfast, without cooking breakfast! So you’ll now be wondering how anyone manages to have serviced accommodation without being full-time in property. This is where serviced accommodation management companies can be worth their weight in gold. 

Many AirBnB management companies can manage your AirBnB for you, but be warned, do your research as they’re not all as good as each other. These companies take care of all the bookings, all the cleaning and bed linen, and can be around 24 hours per day to deal with any guest issues. This service, of course, comes at a price but for many AirBnB landlords, this is an essential cost for running the property as serviced accommodation. Most AirBnB management companies will charge you a percentage of a night’s stay to run your AirBnB for you, anywhere between 12.5% and 20%. This is where number crunching comes in, as the numbers need to stack up to ensure running an AirBnB will make sense financially if you decide to take on an AirBnB management company. 

Serviced accommodation can be a fantastic property strategy if it’s executed correctly. If you’re considering purchasing a property or converting an existing property into serviced accommodation, ensure you have crunched the numbers and have thought about the logistics, as there are a lot of moving parts. You need to ensure that if you have a mortgage on the property, it allows for short term lets and that your insurance covers the short term letting of your property. Be mindful of local council legislation and whether you need to apply for a change of use of the property to allow short term lets. 

The Importance of a Property Exit Strategy

We’re all aware of what’s going on in the news at the moment. With a general election coming up quickly, Brexit and other financial industry uncertainties, many of us have thought about how this will impact the property market.

This blog discusses property exit strategies if the housing market shifts after purchasing a property. An exit strategy is about the financial plan for a property and will be specific to the property and your financial situation.

There are many factors in property investing that are within our control for example where to purchase, type of property, negotiating the purchase price, managing the process from conveyancing to the refurb, but not everything is within our control. If the property market changes, we need to make sure we have thought of exit strategies.

We need to be smart with our numbers when thinking about investing in property. All wealthy property investors will tell you that you make money when you buy. Therefore when you are looking for a property to invest in, start with the numbers, and make sure you don’t pay over the odds for a property. Cost up all renovation work, legal fees, stamp duty etc. to get a figure for total costs involved in buying a specific property. We research the current market in the area we are looking to buy in to estimate our end value. Look for properties for sale, under offer and sold within the past 12 months to get a feel for the end market value. We always err on the side of caution with our end value and keep it on the lower side of recently sold properties. With the end value in mind, we take away our profit margin and all costs associated with purchasing and renovating the property from the estimated end value, to calculate our maximum purchase price. 

The calculation above helps decide a fair price to offer if you’re considering flipping a property. That might be the initial plan, but we like to dive a little deeper. We always ask ourselves: if for some reason the property market dropped or the property didn’t sell, could we sacrifice some of our profits and still sell the property without making a loss, or could we hold onto the property? Spending some time researching the area you are looking to invest in will go a long way when it comes to the second strategy. If you needed to hold on to the property while the market comes back up to the level you bought at, how much could you achieve in rent and what is the rental demand in the area? We ideally like to work out the yield of the property, which is the total annual rent divided by the purchase price (or estimated end value if we’ve completed renovation works), to ensure the deal still stacks up. This will give us two more exit strategies: hold on to the property and pay down the mortgage with money from rent, or rent the property until the market picks up and sell once we know we’re profitable.

Deciding on an exit strategy is important when considering buying a property as an investment. We always make sure if we’re planning to flip a property, do the numbers still work if we needed to hold the property and rent it out. Other property strategies that could be considered are HMOs or serviced accommodation (AirBnB). We wouldn’t normally crunch the numbers for either of these strategies unless our first couple of options were not feasible. Normally if a property is suitable for an HMO or AirBnB it would be the main strategy and the property would’ve been bought with this in mind. Both of these strategies can be very lucrative but require experience, and a bigger time and monetary investment.