Serviced Accommodation – How does this type of property investment work?
One of the growth sectors in the property rental market is Serviced Accommodation. It refers to short stay accommodation where an overnight service is provided, and it can include hotels, guesthouses and meals. Instead of having ‘tenants’ you are effectively letting the property to ‘guests’. Letting time is flexible and can range from one night to several months. Fees are higher than those generated from a buy-to-let (BTL) or single-let and hence returns on your investment should be higher.
However, you need to be aware that the costs for the landlord are also higher. Serviced accommodation is usually furnished and equipped with provisions for an overnight stay: bed linen, towels etc Furthermore, you will need to budget for cleaning, laundry and security. Developing a positive relationship with local cleaning/housekeeping and property maintenance businesses will help you run your Serviced Accommodation efficiently.
Efficient running of Serviced Accommodation is crucial because you will need to collect positive reviews from people who stay with you. You are seeking to generate regular stays and a high return on investment, this can only be achieved if you fill the accommodation!
As with any property investment, it is important to know your numbers! Check out demand in your chosen area, the prices that people are charging and the facilities they are providing. You will be responsible for all bills, and you will need to factor these costs into your budget. Also, check if your income might be seasonal. You might find earnings vary hugely depending on the time of year and so, when looking at earnings over a 12-month period, you will need to factor this into your income forecast.
To finance Serviced Accommodation (SA) you will require a commercial mortgage. The borrower is allowed a first charge loan (mortgage) using a current residential property as security. Mortgage payments are met by the rental income received from the serviced accommodation.
You can usually borrow up to 75% LTV (loan to value) of the value of the property. The property may be leasehold or freehold. Length of leasehold is taken into account when assessing approval of the loan. The lender often determines the loan size by the market rent as if the property were a BTL rather than a SA. This protects the lender in the event of default, and they have to requisition the property.
If you are interested in financing your property investment in Serviced Accommodation please speak with one of Wharf’s financial advisers. We are here to help!