Serviced accommodation has emerged as one of the fastest-growing sectors in the UK property market, combining the convenience of hotels with the comfort and privacy of apartments.
This innovative concept has gained popularity among tourists, business travelers, and individuals seeking longer stays. It’s also becoming quite popular for savvy investors–especially those looking to get the most out of their assets.
In this serviced accommodation guide, we will explore what this investment entails, how to invest in it, as well as the potential benefits and drawbacks.
What is Serviced Accommodation?
Serviced accommodation is a fusion of long-term buy-to-let properties and hotels. It involves renting out fully furnished properties to tenants for short-term stays, offering hotel-like amenities.
Unlike traditional buy-to-let properties with fixed-term contracts, serviced accommodation provides guests with flexibility, allowing them to choose the duration of their stay.
The term “serviced” refers to the additional services provided to residents, such as housekeeping, Wi-Fi, laundry, and concierge services.
These services can be tailored to create a bespoke experience similar to that of high-quality hotels. While “serviced accommodation” may be new to some, Airbnb, one of its most significant providers, has experienced tremendous growth and has transformed many buy-to-let properties into serviced apartments.
Serviced accommodation can come in various forms, including apartments, houses, cottages, caravans, and even houseboats. As the popularity of this accommodation type continues to soar, property investors are considering its pros and cons to determine its suitability as an investment strategy.
Let’s delve into the potential benefits and drawbacks of investing in serviced accommodation.
The Pros and Cons
One of the key considerations when investing in serviced accommodation is the potential income it can generate. The amount of money you make from a UK-serviced apartment depends on how consistently you can keep it booked with guests. Unlike traditional buy-to-let properties, serviced apartments may experience longer void periods without a consistent cash flow.
While buy-to-let properties usually have six to twelve-month tenancies, serviced accommodation relies on shorter stays, leading to fluctuating income. However, if you can consistently house guests, the potential for returns can be significant. It’s important to factor in the increased costs of a serviced apartment, such as furnishings, housekeeping, and services like Wi-Fi and bills.
Higher rental income is one of the primary advantages of serviced accommodation. By offering short-term stays, you can charge higher fees per night than traditional buy-to-let properties, potentially increasing your profits.
The higher tenant turnover associated with shorter stays also reduces the chances of long-term issues with disruptive or unruly tenants.
Serviced accommodation also provides greater flexibility, attracting a broader range of potential tenants who can stay for a few days or an extended period based on their needs and bookings.
How Much Money Can You Make from Serviced Accommodation in the UK?
Selling serviced accommodation is typically quicker and easier compared to waiting for a tenant to finish a fixed-term tenancy in traditional buy-to-let properties.
This allows for more fluidity in your investment strategy. Another advantage is the ability to adjust rental rates based on the season.
If your area experiences high tourism during the summer, you can increase rental rates to take advantage of the increased demand.
Furthermore, the serviced accommodation market is experiencing rapid growth, with platforms like Airbnb reporting significant profit increases. This upward trend is expected to continue, providing opportunities for investors.
However, there are some potential drawbacks to consider. Furnishing the property and providing additional services like housekeeping and Wi-Fi can lead to higher expenses compared to traditional buy-to-let properties.
These initial costs should be factored into your investment calculations. Relying on tourism for income means there may be significant periods without tenants, resulting in longer void periods. It’s crucial to have a financial buffer in place to cover ongoing costs during these periods. Additionally, there is a potential risk of damage to the property and furnishings due to guests booking serviced accommodation for parties or other activities.
Regular maintenance and thorough screening of guests can help mitigate this risk. Moreover, continually seeking new guests may require higher marketing expenses as you advertise the property online. Developing a well-thought-out marketing strategy is essential to attract a consistent flow of guests.
In addition to these considerations, managing serviced accommodation requires addressing unique logistical aspects, such as arranging remote key pickup/drop-off or personally meeting every guest.
In conclusion, the serviced accommodation sector offers a promising investment opportunity for landlords seeking higher returns and greater flexibility.
By leveraging the rising popularity of short-term stays and providing hotel-like services, landlords can generate increased rental income. However, it’s crucial to carefully consider the potential downsides, such as higher costs and longer void periods.
Thorough market research, evaluation of demand in your area, and financial viability assessment are essential before venturing into serviced accommodation investments.
With proper planning, effective management, and a sound understanding of market dynamics, serviced apartments can offer a lucrative and rewarding investment experience in the evolving property market.
By tapping into the growing demand for flexible and comfortable short-term stays, serviced accommodation can be a profitable venture with the proper dedication and effort.