Property Strategies (Part 6)
In this series of blog posts we’ve thinking about the main strategies that we can use in property – and whilst this isn’t something that I pursue personally, this is worth thinking about as it can generate exceptionally good returns. The strategy in question is “Serviced Accommodation”.
Serviced accommodation is essentially letting a property out on a short-term basis to “guests” rather than tenants, usually by the night as opposed to a single let or buy to let that usually comes with a six month or one year tenancy.
Now, the great thing about serviced accommodation is that quite often it’s the same sort of property as that which could be used for a single let or buy to let BUT, the returns that you’re going to get will be far higher.
The reason for this is that the type of fees you can command for a single night (or short period of time) will be proportionately far greater than the amount that could be charged for a normal six month or yearly rental period. And this is the great attraction.
In many ways, serviced accommodation is more of a business strategy than a property strategy, and so the amount of work that you need to put into it will be far greater. What’s more, with this type of strategy you will need to have a proper team in place to support you. You’ll need people that can come in to do the cleaning, the changing of the linen… and so on – plus, the property would need to be let fully furnished. Serviced accommodation is somewhat like creating a little bed and breakfast, but without producing the breakfast.
There are many, many different models that people use within this strategy. You could have a single let house that you rent out as a whole property, or you could have a single let house which runs almost like a mini HMO where by you rent the property room by room. The latter model is slightly more complex as it would require you to give some consideration to things like security and how the shared facilities will be allocated between the different rooms. But if you can do it, you’ll find that the return on the money that you spend on the property will be far greater.
There are a few things that you need to think about with this strategy, though. For example, planning – under the Planning Act, this type of property is considered a different class; it’s not classified as a normal residential property and therefore you have to get proper planning consent.
Also, the type of finance that you’ll need will be different. Rather than a buy to let mortgage, you will need a commercial mortgage. Plus, you’ll need the right insurance for this type of property too.
One other thing you also need to take into consideration is that some Local Authorities are actually opposed to short term lettings. Some Authorities want more stable populations where people have access to properties – in other words, homes – for a length of time. As such, there are some Councils that have brought in a 90-day rule that only allows properties to be used on shorter term lets for a period of up to 90 days in any given year, rather like holiday lets. So, this is something to think about if this is the case in your area.
When it comes to holiday lets though, one of the benefits is that there are particular tax rules – and there can be great tax breaks – so, it is worth checking out what you can and can’t do in your locality.
All in all, serviced accommodation is a great strategy to consider. And, whilst I don’t this myself, I do know many investors that have made this their principal strategy and they do very well indeed.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to: www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop