The Serviced Accommodation Business Explained

Do you want to know more about the serviced accommodation business?

Is it something that you have thought about getting involved with but didn’t have enough information to go ahead?

In this post I will share my thoughts with you on the serviced accommodation business. As usual I will be honest with my views on it and will provide you with the most important details so that you can make an informed decision.

The first thing to say is that I am not personally involved with serviced accommodation at the moment but I do know others that are. These property investors swear by the business and they make a significant amount of money from it.

Of all the property investment strategies, the serviced accommodation business is a relative newcomer. There are advantages and disadvantages to looking at a new strategy like this. The main advantage is that it is exciting to get involved in something new. On the downside there is not as much information about the strategy as you will find with others.

What I do know is like most property investment strategies, the serviced accommodation business will work for you if you do it right. There are investors generating really good income from this so let’s take a closer look.

So what exactly is Serviced Accommodation?

The difference between serviced accommodation and traditional buy to let is that you will rent the property short term as opposed to the longer term. People involved in the serviced accommodation business like call their short term tenants “guests”. The reason for this is it works in a similar way to a hotel.

With a traditional buy to let scenario it is unlikely that your tenancy agreement will be any shorter than six months and more likely to be a year. Contrast that with serviced accommodation where you can let out a property for a single night. There are some lettings for a weekend, a week, a month and even for 6 months.

Investors involved with service accommodation prefer the longer lets of say 6 months. Sometimes this happens when a company comes along and wants to put up one of their employees for this kind of time period. This happens fairly often and there is no reason why you cannot do the same thing.

Where serviced accommodations scores over buy to let is in its flexibility. With buy to let there is a more rigid structure where the landlord will want to tie a tenant in to a minimum of a six months tenancy agreement. This is not the case with serviced accommodation.

So what does service accommodation look like? In most cases it looks just the same as property used for buy to let. Although the properties can look the same, the potential earnings with serviced accommodation are higher. This is because you can charge more for shorter term lets on a per night basis for example.

With a standard buy to let deal you may be able to generate £800 a month in rent let’s say (depending where the property is located). If you have serviced accommodation then you could charge £80 per night. It is unlikely that you will occupy your serviced accommodation each day, but you will not need many nightly “lets” to surpass £800 per month.

What are the Drawbacks of the Serviced Accommodation Business?

The concept of the serviced accommodation business sounds good doesn’t it? But as with any strategy there are some drawbacks to it. Let’s take a look at the major drawbacks of this property investment method:

You will need to Work Harder

Although the potential for generating higher incomes with serviced accommodation is certainly there you will have to work harder to achieve it. In a lot of ways, serviced accommodation is like a holiday let. You need to work hard to find people to let your property to for short periods of time. And then you have to manage the guests (see below).

You will have to Furnish

People that let a property for a night or some other short period of time will expect everything to be available for them. Nobody is going to let a property for the weekend and bring their own furniture! So this means that you will have to furnish your serviced accommodation.

With a buy to let property you have the choice of furnished or unfurnished. You do not have this choice with serviced accommodation. It is essential that you provide a bed and other furniture. You will probably want to provide a good TV and you will need to supply towels and other amenities. It’s a bit like a hotel room.

You will need to Clean the property regularly

When a guest leaves your serviced accommodation you will need to clean in preparation for the next guest. You will have to change the sheets, the towels and ensure that the place is spotless before your next guest arrives.

You can outsource this if you want to. When you have serviced accommodation if you are not prepared to do all of the work then you will need to find others to do it for you. This includes cleaning and laundry as well as checking guests in and out at all hours of the day and night.

You have to manage the guests

A lot of people in the serviced accommodation business advertise their properties on websites like Airbnb. This can generate a lot of business but it also means that guests can show up at the most unreasonable times. If a guest turns up at 2am who is going to handle seeing them into to their accommodation?

Trying to take care of your serviced accommodation business yourself will take up a lot of your time and really goes against the property investment philosophy. So you will need to create a team of people that will support you so that you can focus on your next property move. There will be a cost to this of course.

What is your Serviced Accommodation Strategy?

It is important that you are clear about what your serviced accommodation strategy is as it will mean that you will be looking for different types of guests. If you have a property where you can let single rooms then this is very different to having a house where you want to let to a single family.

Whatever way you decide to run your serviced accommodation business it is very likely that you will require planning permission to make it happen. Most local authorites will consider a property used for serviced accommodation to be different to a conventional residential property so you will have work to do here.

When you want to invest in serviced accommodation you will not be able to obtain a buy to let mortgage. You will need to find a lender that can arrange a commercial mortgage for you. Don’t try to fool a lender here because you will really upset them if they discover that you used a buy to let mortgage for a serviced accommodation property.

You could well find that a lender in this situation will demand their money back and cancel your mortgage arrangement. This is going to be a lot of trouble for you so it is best to be upfront with them.

Some Local Authorities don’t like Serviced Accommodation

I do not have concrete examples of this but I have heard from people that are in the serviced accommodation business that some local authorities do not like it and are trying to restrict the numbers of properties in the area of control.

So if you are interested in getting involved with serviced accommodation you must do your homework to see what the temperature is in the areas that you want to invest. Don’t even think about trying to cut corners because they will catch up with you and you could get into a whole heap of trouble.

One aspect that you really need to pay particular attention to is having the right kind of insurance. It is not worth taking any risks with this. If the worst happens and you haven’t got the right cover then you are going to be in serious hot water.

Serviced Accommodation can be a good Business

My intention was not to put you off going into the serviced accommodation business with this post. I just wanted you to know the important aspects of it before you start looking for your first investment. If there are buy to let properties available in the area you are interested in then you could use these for serviced accommodation.

It is important that you research whether your target customers will be in the area that you want to invest in. Just because there is high demand for private rentals in an area does not mean that there will be a high demand for serviced accommodation. You do not want to invest in the wrong areas otherwise you will find it very difficult to turn a profit.

As always, treat this strategy as a business. Crunch the numbers and see if it is viable. Take into account all costs including paying people that you will need to manage your serviced accommodation properties.

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