Serviced accommodation can be incredibly lucrative for you as a property investor. Here we take a look at what serviced accommodation actually is, different types of serviced accommodation, pros and cons, and how you can start investing in the serviced accommodation market.
What is serviced accommodation?
Essentially, serviced accommodation comprises rental properties, usually apartments, in which the tenants enjoy hotel-style services. Much like a regular residential let, they include bedrooms, bathrooms, kitchens, etc. but with regular housekeeping and often other perks like gym access, extra security, 24-hour concierge services, swimming pools, or other amenities. All utilities are usually included on the rental cost including wifi.
Serviced accommodation, also known as self-catered accommodation, is usually a short term let of less than 6 months, rented by people who are on holiday, travelling, or away from home for work. As you can imagine, people pay a lot more for serviced accommodation than usual residential lets. AirBnB is a very well-known version of serviced accommodation – they made $8.4 billion in revenue last year. So could serviced accommodation be a good avenue for investment?
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Different types of serviced accommodation
Corporate housing is most often used by people who travel for business or need to relocate to a new area temporarily for work. Corporate housing is usually apartments or houses offered for a longer term stay than other types of serviced accommodation.
Most corporate housing is located quite close to a job site or at least has good transport links. Most tenants of corporate housing expect a comfortable, private and quiet accommodation that includes an office space or desk. While some corporate housing is fairly basic and ‘no frills’, more and more companies are offering high-end, luxury accommodation, which can include space for whole families rather than individuals.
Aparthotels & serviced apartments
This portmanteau of apartment and hotel is exactly what it sounds like – all the privacy and comfort of an apartment with the amenities and benefits of a hotel. These are often self-contained apartments that are regularly serviced and cleaned, and frequently offer extras like leisure facilities or restaurants. Aparthotels and serviced apartments are often used by people travelling or holidaying as a cheaper and more private alternative to hotels.
This is the most well-known form of serviced accommodation that has been made popular by the likes of AirBnB and VRBO, where holidaymakers choose to stay in houses or apartments rather than hotels. Holiday lets are very popular in touristy locations as an alternative to a hotel that offers more freedom and flexibility. Many holiday lets have unique features about them – some are quirky buildings like lighthouses, yurts, log cabins, or even houseboats.
Pros of investing in serviced accommodation
Providing this higher level of service commands higher rental values. A property that you might expect a monthly rent of £1000 could command as much as four times this when offered as service accommodation. Properties in prime tourist locations, those which include access to luxury amenities, and good local transport links can demand the highest revenue.
Easier to sell up
If you want to sell the property on, it can be tricky if long-term tenants are present. Serviced accommodation with its short-term lets is ideal for those who want to sell up at short notice. Serviced accommodation is generally let on an informal licence basis, making it easy to evict any tenants and get the property on the market.
A rapidly growing industry
More and more people are realising the benefits of staying in serviced accommodation instead of a hotel. A budding property investor can get in on the ground floor of this burgeoning industry and, with wise investment and careful management, can make astounding profits.
Serviced accommodation presents potential tax advantages. It can qualify as a furnished holiday let (FHL), allowing for mortgage interest tax deductions – a stark difference from standard buy-to-lets, which face Section 24 restrictions. Business rates might replace Council Tax, offering savings. Additionally, there may be avenues to reduce Capital Gains Tax and Inheritance Tax. Always check with a professional to find out more about the tax situation of a potential serviced accommodation property.
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Cons of interesting in serviced accommodation
High expectations and higher overheads
Tenants of serviced accommodation do expect more than they would get from a standard rental property. They would certainly expect it to be furnished, complete with a fully equipped kitchen including plates, cups, etc. and even regular housekeeping including freshly laundered bed linen and towels – basically what they would get from a hotel.
It’s often standard to offer extra amenities and perks like 24/7 customer service, access to gym facilities and pools, and even full entertainment packages with Netflix and other channels. All of these things are going to push your overhead costs higher and impact your bottom line.
Requires hands-on management
Unlike the usual ‘set and forget’ nature of property letting, serviced accommodation usually requires more involvement from yourself, whether it’s meeting tenants to give them access and show them around, or making sure the property is kept up to the high standards expected of serviced accommodation. This can be tricky if you are not local to the area or have other commitments. Of course, you can hire a management agency to take care of this for you, but again that will cut into your profits.
Not all properties are suitable
Serviced accommodations not only carry certain expectations of modern, high quality furnishings and appliances, but also their location is paramount. Think about the kinds of people who would require serviced accommodation and what they would expect to be nearby.
If they are on holiday, think about what tourist attractions and nightlife are in the area. If they are visiting the area on business, where are they going to be working? Is it close to the city or town centre? What are transport links like? If the property is not conveniently located, in need of modernisation, and lacks access to high-end amenities, it is probably a poor bet for serviced accommodation.
More void periods
Serviced accommodation is more likely to have void periods, or times when the property is vacant. Obviously this can impact your yield and means you have to put more time into finding new tenants, although the higher price serviced accommodation commands can balance this out.
How to invest in serviced accommodation
Purchase an existing serviced accommodation property or create your own
You could invest in a property that is already set up for serviced accommodation, which could save you valuable time and money. Another way is to convert other apartments or dwellings into serviced accommodation, although bear in mind, this will take some time and you could run into unexpected issues.
Check on local laws regarding short-term lets
Not all properties are suitable for short-term rental periods that people expect of serviced accommodation. Check on any local licensing and planning regulations that apply to the area before investing.
Investigate the location
Take the time to thoroughly examine the location of your potential property. Is it in a convenient location for would-be renters? What other similar accommodation is nearby, e.g. hotels or other serviced accommodation? Are there good transport links? If you are aiming at the corporate housing market, consider what large companies are in the immediate area. area. If you are going for the holiday maker market, think about what tourist attractions and entertainment choices are nearby. All of these things will determine whether it is worth developing into serviced accommodation.
If you want to learn more about property investment and how you can get started, check out Assets For Life. They offer free online workshops and intensive, in-person property investment courses for both new and seasoned property investors.