Investing in Residential Buy to Let property is a proven and tangible asset and has enticed many landlords and investors over the last few decades with its attractive annual yields and capital growth. However, considering the recent years’ tax legislation changes, that have not been in favour of the landlord, there is now a different type of rental model that can seriously boost annual rental income as much as 10% net, and in some cases even more.
What is a serviced apartment or serviced accommodation?
A serviced-apartment, or serviced accommodation, is any furnished residential apartment with a significant rental twist – the properties offer like that of a hotel-style experience. Supported by full-time housekeeping and associated facilities & services, such as a concierge and in some cases a gymnasium.
This hotel-style model offers short-stays and long-stays to tenants, with a fluctuating per night/per week rate based on demand forecasting and a dynamic pricing system throughout the year.
Using the right management company annual occupancy will be maximised with their affiliations with Online Tour Agencies, such as: Corporate Lets, Airbnb and bookings.com, looking after your tenants and maintaining your property to a very high standard.
Unlike hotel rooms, serviced apartments tend to offer a lot more space and feature a kitchen or kitchenette, so self-catering always remains an option. This explains the growing popularity of staying in serviced accommodation: visitors like the self-contained feel and the freedom to come and go as they wish.
Also serviced apartments can be a more affordable option than a hotel but the quality is comparable – however bigger rooms – and fewer constraints.
Why Serviced Accommodation?
Serviced Accommodation has two main markets: leisure stays and corporate stays. If you find a property in a town or city that caters for both you are onto a winner.
With corporate lets, companies may rent a serviced-apartment for as little as a 3-day business trip to all-year-round Monday to Friday stays for businesspeople, where the commute is just too far from home. Some corporate let’s span a full 7-day week, becoming a home from home for the whole family.
Leisure breaks are focused on short-term stays, a long-weekend or even a week-long visit for a spot of city culture or retail therapy. Serviced apartments for special events: main sporting events, concerts and festivals are extremely popular and lucrative.
Serviced accommodation is particularly appealing for families with children of any age that find the self-catering aspect very convenient and more appealing than a hotel that offers less space and no kitchen facilities.
Richard, REW’s Investment Expert in the Serviced Accommodation model explains, “A great example of supply and demand from the leisure market is a main boxing event at Manchester’s MEN Arena in a two-bed apartment, fairly near the arena, will reach £400+ for a one-night stay! As you can imagine with both, the corporate market and the leisure market, it is pure convenience for the occupier. A convenient location increases the chance of higher occupancy throughout the year, higher occupancy equals higher demand and this in turn can create a shortage of accommodation which means the nightly rate increases – as with anything the less there is the more it costs”
Serviced Apartment V’s Location
Location is the key to any good property investment. It’s the starting point and focus on every investor’s journey. It is particularly important in the serviced accommodation sector. Choosing a serviced apartment in the right location, such as a UK main town or city, can easily boost a single figure annual yield on a traditional AST est. between 3.5% – 5% to double digits of between 8% and 10% and in some areas even higher.
Richard continues, “There are of course areas where the serviced-apartment short term let model has not worked as well as expected, maybe the outskirts of a city which isn’t near the business district and/or city centre. However, this is the beauty of this rental model, these property types are perfect for AST’s so they can very quickly and simply be flipped into traditional long-term lets on an AST, that will deliver a good annual yield..”
Why use a specialist Management Company?
It is advisable to use an experience management company if you want to take full advantage of maximising your annual rental income. That said, if you have the time and knowledge or you are an experienced full-time landlord it is something you could possibly manage yourself.
Marketing and bookings, which is largely affiliations with the Online Tour Agencies e.g.: Corporate Lets, Airbnb and bookings.com, is essential as this rental model is similar to that of running a hotel.
An experienced serviced accommodation/short lets management company will manage the apartment/ block of apartments for all buyers. The company will manage the whole process making it hands-off for investors.
Benefits and exit strategy
Serviced apartments in some cases can benefit from Furnished Holiday Let (FHL) tax relief. To qualify the property must meet certain criteria. Furnished Holiday Lets are generally taxed in a more advantageous way than normal residential property, more similar to a commercial building than standard residential investment. One of the main tax advantages is the ability to claim Capital Allowances on both loose items of plant (e.g. furniture) and the fixtures in the property.
A correctly supported claim for Capital Allowances can mean that an FHL can have significant tax relief on its rental profits for many years.
The beauty is you have a wide range of exits, as like selling any traditionally ran Buy to Let property.
With the serviced accommodation rental model the two main benefits are;
- You will never have to pay a fortune to bring the property back up to a sellable condition.
- You will be able to show a period of accounts with a higher than market income that’s been working successfully for you for one, two, three or more years.
Market data finds are only positive for this sector which only support upward pressure on prices in the re-sale market.
Recently Knight Frank published research findings that pointed to a rapid and potentially disruptive expansion in the serviced apartment sector. It wrote: “The unprecedented growth in 2018 of the four-star and serviced apartment sectors… is set to challenge the market share of new rooms in the budget sector.”