What is a serviced apartment or serviced accommodation?
A serviced-apartment, or serviced accommodation, is any furnished residential apartment or property with a significant rental twist – the properties offer like that of a hotel-style experience. Supported by a full-time housekeeping and associated facilities & services, such as a gymnasium, café, bar, swimming pool and concierge.
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.
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 more 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.
Serviced Apartment V’s Location
Location is the key to any good property investment. It’s the start point and focus on every investor’s journey. It is particularly important in the serviced accommodation short-let sector.
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. A great example of supply and demand is for a main boxing event at Manchester’s MEN Arena a one-night stay in a two-bed apartment, fairly near the arena, can reach £400+ for one night!
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.
Serviced accommodation - property and how it compares to hotel accommodation
From an investor’s perspective one bed-apartments notoriously achieve higher occupancy than a two bed-apartment, so the annual yield is a tad higher – however marginal, around 1%, maybe 2%.
That said, two bed-apartments naturally seek a higher nightly-rate and higher capital growth year-on-year – again marginal. From an ROI standpoint in the long run both property types work out on-par with each other – making either a great purchase for this rental model.
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.
How much rental income can I earn?
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.
One Bed – Estimated Serviced Accommodation Financial Breakdown
||Est. SQ FT
||Service Charge & Ground Rent
Do I need a specialist Management Company and what do they do?
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 our investors. They will undertake the following:
- The bookings,
- The check-ins,
- The check-outs,
- The cash handling through their booking systems,
- The expenditure,
- The post-check out laundry and cleaning and
- The distributing out of clear, accurate accounts for you each month showing your income, costs and Net profit via a statement.
Can Serviced Apartments benefit from Furnished Holiday Let (FHL) tax relief?
Yes, they can. A furnished holiday let or FHL is a furnished property that is let for short periods.
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.
We advise all our customers to seek independent advice from their Accountant or Tax Specialist. Alternatively, we have a specialist Tax company that we can put you in contact with.
Resale and Exit Strategy
The beauty is you have a wide range of exits, as like selling on any normal 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 also 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.”