In recent years, serviced accommodation has grown in popularity among landlords and property investors alike. Here’s what you should know if you’re thinking about investing in serviced accommodation.
In this guide
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Serviced accommodation is completely furnished and self-contained, with hotel-style amenities provided.
Serviced accommodation includes a wide range of lodging alternatives. It could be low-cost or high-end accommodation. It could be accommodation rented by the day, week, or month. Tourists and leisure visitors, business people, contractors, and others all benefit from serviced accommodation.
From a property investment standpoint, it is crucial to understand that serviced accommodation is a sort of short-term rental.
The serviced accommodation industry provides a wide range of solutions to meet the different needs and tastes of tourists. In this section, we will look at three popular types of serviced accommodation: serviced flats, apart-hotels, and corporate housing.
We chose not to discuss the more traditional Airbnb-style rental houses in the following subsections because they are the most frequent form of serviced accommodation and are already well-known. Instead, we want to provide a thorough awareness of the different specialty serviced lodging options available in the UK, which may provide unique benefits and advantages to travellers looking for a more personalised experience.
Serviced Apartments
Serviced apartments are a popular lodging choice that expertly combines the comforts and seclusion of home with the amenities and services traditionally associated with hotels. These apartments are specifically created to provide guests with completely furnished living spaces that include important facilities such as bedrooms, living rooms, fully equipped kitchens, and private bathrooms.
Serviced apartments offer to a wide range of tourists, as they are frequently located in great areas with easy access to public transport, dining places and local attractions. These include corporate executives, families, and individuals who want a more tailored experience. In this section, we will go over in further detail the features, services, and perks that contribute to serviced apartments’ growing appeal as a favoured choice for lodging in the United Kingdom.
- Features and amenities: Serviced apartments provide a wide range of amenities to meet the various demands of their guests. Guests may expect spacious, completely furnished living areas that include bedrooms, living rooms, fully equipped kitchens, and private baths. Wi-Fi, laundry facilities, and housekeeping services are frequently provided as additional amenities. Furthermore, many serviced apartments offer access to on-site amenities including gyms, swimming pools, and parking lots.
- Ideal for business travellers and families: The adaptability of serviced apartments makes them an appealing option for a wide range of travellers. Business professionals can benefit from a pleasant and productive atmosphere during extended visits, while families can enjoy more space and amenities than standard hotel rooms. Serviced apartments’ popularity for extended stays and vacations stems from its self-catering facilities and homely feel.
Aparthotels
Aparthotels have developed as a modern housing alternative that is gaining appeal among property developers looking to leverage on the need for a seamless blend of home-like comforts and hotel-style facilities. Aparthotels are typically housed in modern, purpose-built buildings or rehabilitated historic structures and can be found in ideal locations around the UK, including metropolitan centres, business districts, and major tourist sites.
In this section, we’ll look at the distinguishing characteristics, facilities, and services that make aparthotels an intriguing investment option for those wishing to meet the demands of travellers who want the freedom of a serviced apartment with the added convenience of hotel amenities. Understanding the different advantages of aparthotels allows investors to make informed decisions about the possibilities of this emerging market segment in the UK property environment.
- A hybrid between a hotel and serviced apartment: Aparthotels are a unique blend of hotel and serviced apartments, offering guests the comforts of a fully-furnished apartment with the added convenience of hotel-like services. These accommodations typically provide a range of self-contained units, including studios, one-bedroom, and two-bedroom apartments, all equipped with the necessary amenities such as a kitchenette, living area, and private bathroom.
- On-site facilities and services: Aparthotels often boast a variety of on-site facilities and services similar to traditional hotels, such as reception desks, room service, and daily housekeeping. Additional amenities may include fitness centres, meeting rooms, and restaurants or bars. This fusion of apartment-style living and hotel services makes aparthotels an attractive option for those seeking a balance between independence and convenience during their stay.
Corporate Housing
As the corporate landscape changes and global mobility becomes more common, the demand for customised lodging options tailored to the specific needs of business travellers grows. Corporate housing addresses this demand by providing fully furnished, comfortable living areas, as well as a variety of services tailored to help professionals with extended stays or relocations.
In this section, we will look at the unique features and benefits of corporate housing, throwing light on how this specialty category meets the demands of business travellers and offers possible investment opportunities in the UK property market. Understanding the specific benefits of corporate housing allows investors to make more informed decisions about the possibilities of this emerging market segment in the UK property environment.
- Tailored for business travellers: Corporate housing is a sort of serviced accommodation that is primarily designed to meet the needs of business travellers, especially those on extended trips or in the process of relocating. These properties frequently offer completely furnished apartments or houses with all of the required amenities, such as a well-equipped kitchen, pleasant living spaces, and designated work areas, providing a smooth transition and productive stay for professionals.
- Long-term stays and relocation: Corporate housing is often available for stays of one month or more, making it an excellent option for personnel on temporary assignments, projects, or those migrating to a new location. In addition to suitable living spaces, corporate housing providers frequently provide other services, such as aid with local registration, utility setup, and access to local amenities, to help their clients acclimatise to their new surroundings and integrate into the community.
What Should a Serviced Let Include?
Serviced accommodation often consists of completely furnished flats or buildings that are outfitted with necessary amenities and services to ensure a tenant’s comfort and convenience. The specific amenities may differ based on the supplier, but most serviced accommodations should include:
- Furnishings: The apartment or property should be fully furnished, with all necessary furniture and appliances like beds, sofas, tables, chairs, refrigerators, and cooking equipment.
- Housekeeping: Regular cleaning and maintenance services should be provided, which may include cleaning, linen changes, and waste disposal.
- Utilities: All essential utilities like water, electricity, heating, and air conditioning should be provided and included in the rental price.
- Internet and communication: Internet connectivity and communication facilities like phone lines should be provided.
- Security: Serviced accommodation should provide security measures to ensure the safety of tenants and their belongings.
- Access to amenities: Depending on the provider, serviced accommodation may offer access to additional amenities like a gym, swimming pool, or communal areas.
- Flexible terms: Serviced accommodation should offer flexible rental terms to accommodate the varying needs of tenants.
- 24/7 customer service: Serviced accommodation will often provide 24/7 customer service to assist tenants with any issues or queries that may arise during their stay.
- Location: Serviced accommodation is typically located in central locations, close to public transportation, shopping, dining, and entertainment options.
Overall, serviced accommodation offers a comfortable and flexible alternative to traditional hotels and rental properties, providing a “home away from home” experience for short-term or extended stays.
Does Serviced Accommodation Always Have to be Furnished?
Yes, serviced housing rentals are often furnished, as the provision of furniture and other utilities is one of the primary elements that distinguishes them from ordinary rental houses. In fact, most serviced housing providers provide fully furnished apartments or homes, complete with all necessary furniture and appliances such as mattresses, sofas, tables, chairs, refrigerators, and cooking equipment.
The addition of furniture and other important facilities is one of the reasons why serviced accommodations are frequently more expensive than typical rental accommodations. However, the additional cost is usually offset by the convenience and flexibility of serviced accommodation, which offers a comfortable and homely environment for short or long stays and frequently includes additional services such as housekeeping, 24-hour customer service, and access to amenities such as gyms and swimming pools.
The Pros of Investing in Serviced Accommodation
Here are some of the possible advantages of investing in serviced accommodation:
- High rental income potential. Achievable rents in serviced accommodation are typically substantially higher than those in comparable long-term rentals.
For example, a property let on a long-term rental at £750 PCM could potentially achieve £750 per week on a short-term let.
Strong yield potential. Serviced accommodation has a high yield potential. A property rented on a short-term basis should command a substantially higher rate while costing the same to purchase as a long-term lease.
Serviced accommodation is a rising segment of the accommodation business. More individuals are recognising the advantages of staying in serviced accommodation over hotels or bed and breakfasts. Serviced properties typically have not only a bedroom, but also a living room and kitchen.
Possible market holes to exploit. Because the sector is relatively young, many localities do not currently have any serviced accommodations, or there is insufficient supply to meet rising demand.
New technology makes it easier to identify and manage serviced accommodation lettings. Platforms like Airbnb, VRBO, Expedia, and Booking can help you market and manage your serviced accommodations.
Tenancy laws and restrictions in short-term rentals are generally beneficial to landlords. Serviced accommodation is typically rented on an informal licencing basis rather than an Assured Shorthold Tenancy, or AST.
Guests in serviced accommodation do not have tenure security, long-term occupancy rights, or other tenancy rights. Landlords can easily terminate a short-term lease, evict renters if necessary, and exit the market if they choose to.
Tax benefits may be available for serviced accommodation. For example, serviced accommodation may qualify as a furnished holiday let (FHL), allowing mortgage interest to be claimed as a tax deduction. This is in direct contrast to typical buy-to-let, where Section 24 limits tax deductions for mortgage interest.
Paying business rates rather than Council Tax may allow you to save money on serviced accommodation. There could also be opportunities to reduce Capital Gains Tax and Inheritance Tax.
Before investing in serviced accommodation, seek professional financial advice on the potential tax advantages and disadvantages.
The Cons
Here are some of the possible disadvantages of investing in serviced accommodation:
- Overheads will be higher than if the home was rented out for an extended period of time. In serviced apartments, the landlord is responsible for paying Council Tax or something comparable. Serviced lodging rentals typically include all utility expenses, TV and Internet costs, and so on.
- Leasehold difficulties. Short-term and serviced lettings may be prohibited or restricted in leasehold properties. Before investing in property for short-term rentals, investors should do their due diligence.
- Mortgage financing difficulties. Most lenders place limits on serviced and short-term rentals in properties with residential or buy-to-let mortgages. It may be essential to use specialised finance to purchase or refinance, which will be more expensive.
- VAT. Value Added Tax is levied on serviced accommodation rentals but not on long-term AST rentals. This may affect the individual investor’s tax situation. Again, expert financial counsel should be sought.
- Restrictions apply locally. Some communities have or are considering to impose restrictions that prevent or limit property owners from renting out their properties on a short-term basis. They may do so through landlord and property licencing restrictions, as well as planning limitations.
London property owners can only rent out their property for a maximum of 90 nights per year without obtaining planning clearance.
What Type of Guests Would You Expect?
Serviced accommodation is popular among a diverse range of guests, including:
- Business travellers: Serviced accommodations are a handy and flexible alternative to hotels for business travellers who need to stay in one area for a prolonged period of time. They provide a comfortable and quiet environment in which to work and rest while also providing vital amenities like as housekeeping and 24-hour customer support.
- Tourists and holidaymakers: Serviced accommodation can be an excellent choice for anyone seeking a pleasant and convenient base from which to explore a new city or region. They frequently provide greater space and privacy than hotels while also providing access to vital services such as kitchens, laundry rooms, and public areas.
- Relocating professionals: Serviced accommodation might be an ideal alternative for professionals who are relocating for work and require a temporary place to stay while looking for a more permanent residence. They provide a flexible and handy choice for short-term stays that might be less expensive than hotels or regular rental houses.
- People receiving medical treatment: Serviced accommodations might be an excellent choice for people who need to stay in one location for an extended period of time. They create a warm and welcoming environment and can provide necessary services such as housekeeping and access to amenities such as laundry facilities.
Overall, serviced accommodation is great for anyone seeking a pleasant and convenient location to stay for a short or long amount of time, whether for work or pleasure.
Example Yields
Example long-term buy-to-let yield:
£200,000 purchase price
Property let for 11 months of the year at £1,100 PCM, total £12,100 PA
Yield is 6.05%
Example serviced accommodation yield:
£200,000 purchase
Property let for 250 nights of the year at £100 per night, a total of £25,000 PA
Yield is 12.5%
London's 90-Day Rule
The Greater London Authority implemented the 90-day limit for serviced accommodation in London in 2015. The rule restricts the amount of time a property in Greater London can be rented out for short-term lodging to 90 days per calendar year.
The ban was implemented in response to worries about the impact of short-term rental homes on the city’s long-term housing supply. The goal of limiting the amount of time that properties can be used for short-term rentals is to encourage property owners to rent out their houses for longer periods of time, thereby increasing the availability of affordable housing in the city.
The law applies to all properties in Greater London that provide short-term lodging, including serviced apartments, Airbnb rentals, and other types of short-term rental housing. Property owners who want to rent out their properties for more than 90 days a year must get planning permission from their local municipality.
It’s worth emphasising that the 90-day restriction applies to the property rather than the individual owner. This means that if a property is owned by numerous people, the 90-day limit applies to the property as a whole, not to each individual owner.
The 90-Day Rule in Brief
The 90-Day Rule is a ban on renting out rooms and apartments in London for short-term visits. The rule specifies that you can only rent out a room for 90 days per year. This legislation aims to strike a balance between residential and tourist accommodations in the city.
Strategies for Overcoming the 90-Day Rule
Change the Property’s Classification
If your primary strategy is serviced accommodation and you want to rent out a property in London for more than 90 days per year, you should consider changing the property’s classification. London’s properties are normally classified as C3 (residential residences). To avoid the 90-Day Rule, you might ask the local council to modify the property’s categorization to C1 (hotels and guesthouses).
It is crucial to remember that this process can be time-consuming and costly, and it may not be suggested unless you own the property outright. However, if you want to maximise your gains from the London property market, this legal approach may be worthwhile.
Rent for Exactly 90 Days During Peak Periods
Another option is to follow the laws and rent out your house for exactly 90 days during busy periods. You can still get a good return on investment by deliberately choosing the most profitable times of the year. In fact, 7% of all properties in London are rented out on platforms such as Airbnb and Booking.com at least once a year, so there is plenty of chance to profit from the city’s burgeoning short-term rental sector.
Explore Opportunities Beyond London
One of the most effective strategies to avoid the 90-Day Rule is to look for investment possibilities outside of London. If you are not committed to a specific location, explore cities such as St Albans or Watford, or travel farther north. You can locate profitable investment possibilities without worrying about the 90-Day Rule if you have an open mind and focus on places with less stringent rules.
Finding the correct property, equipping it appropriately, effectively marketing it, and offering good customer service are all steps in the process of opening a serviced accommodation. Here’s a general outline of the steps involved:
Find the Right Property: Look for properties in desirable areas with convenient access to public transit, restaurants, and other amenities. Consider the size of the property and the number of guests you intend to accommodate.
Furnish the Property: Furnish the house with comfy and modern furniture that will meet the needs of your target market. Make sure the property offers all of the amenities you need, such as a fully outfitted kitchen, high-speed internet, and cable TV.
Set up Your Website and Listings: Create a website for your serviced accommodation and list it on popular internet platforms like Airbnb, Booking.com, and Expedia. Make sure you include accurate and complete information on the property, such as the number of rooms, facilities, and the location.
Market Effectively: Promote your serviced accommodation through social media and other relevant web channels. Use search engine optimisation to increase the exposure of your website and attract more bookings.
Provide Excellent Customer Service: Ensure that your guests enjoy excellent customer service throughout their stay. Respond quickly to their questions and resolve any concerns they may have. Give them a clean and comfortable living space, and make sure they have everything they need to enjoy their stay.
Manage Your Property:
Manage your property successfully by keeping it clean, maintaining the facilities, and responding to any issues that develop swiftly. Consider employing a property management company to assist with the day-to-day operation of your serviced housing.
Overall, opening a serviced lodging demands a major time and financial investment, but it can be a profitable and gratifying business venture if done right.
How to Invest in Serviced Accommodation
You can invest in serviced accommodation by either purchasing a new home and renting it out or converting an existing buy-to-let to serviced housing.
One approach is to enter the serviced accommodation business through a rent-to-rent agreement.
In each scenario, you should consider the property’s suitability for serviced lets, as well as the relevant advantages and disadvantages.
When it comes to financing serviced accommodation in the UK, you may need to explore a variety of choices. One option is a business mortgage, which is intended for commercial buildings such as serviced apartments. However, commercial mortgages can be more expensive than residential mortgages and require a larger down payment, so look around and compare rates.
Another option to explore is a holiday lease mortgage, which is intended for properties that will be rented out on a short-term basis. These mortgages may be appropriate for short-term serviced accommodation rentals. However, not all lenders provide vacation let mortgages, and the rules and criteria may differ from those for regular buy-to-let mortgages.
Finally, the optimum financing solution for your serviced accommodation will be determined by your unique circumstances and the lender’s standards. It is advised that you consult with a mortgage counsellor who specialises in serviced accommodation to determine the best financing solution for your circumstances.
Conclusion
London’s 90-Day Rule may appear to be a huge impediment for property investors, but with the correct methods in place, you may successfully traverse it. Whether you choose to change the classification of your property, rent for exactly 90 days during peak periods, or look for opportunities outside of London, there are legal methods to take advantage of the city’s property market.
Always speak with specialists, such as solicitors and property advisors, to ensure you’re making sound financial decisions. By doing so, you will be well on your way to success in the London real estate market and beyond.
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Should You Invest in Serviced Accommodation?
In summary, serviced accommodation can offer high rental incomes and high yields to property investors especially when compared to a standard buy-to-let. However, there are additional costs and expenses which must be considered too.
If you are interested in this kind of investment it is important to consider if the serviced accommodation model suits you and your individual investment objectives.
How does serviced accommodation differ from traditional hotels?
Unlike traditional hotels, serviced accommodation typically offers more space, privacy, and flexibility. Guests can enjoy amenities such as a fully equipped kitchen, separate living areas, and multiple bedrooms, akin to living in a home rather than a hotel room. Additionally, serviced apartments often cater to longer stays, making them popular among business travellers, families, and individuals relocating for work.
What are the benefits of choosing serviced accommodation?
Opting for serviced accommodation presents several advantages. Firstly, guests have the flexibility to cook their meals, saving on dining expenses and catering to dietary preferences. Secondly, the additional space and amenities make it suitable for both leisure and business travellers, allowing them to work, relax, and entertain guests comfortably. Moreover, serviced apartments often offer cost savings for extended stays compared to traditional hotels, making them a preferred choice for those seeking value and convenience.
