Ultimate Guide to Serviced Accommodation Investments
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Ever heard the term serviced accommodation, but wondered what it means and whether it’s the right investment for you?
Serviced accommodation is one of the fastest-growing sectors of the property investment market, and one that savvy landlords should be sure to watch.
With it becoming increasingly popular with tourists, business travellers and those looking for a more extended stay than a hotel could provide, serviced accommodation has some of the best potential for returns and revenue in the UK. So should you consider investing in serviced accommodation, and what are some of the best serviced apartments available to invest in right now?
In this blog, we’ll answer the questions of what is serviced accommodation and is a serviced apartment a good investment, while breaking down the pros and cons of serviced apartments in the UK and helping you understand.
Sound helpful? Keep reading our detailed serviced accommodation guide to find out more.
What Is Serviced Accommodation?
So what is serviced accommodation exactly? Serviced accommodation is essentially the meeting point between long-term buy-to-let accommodation and hotels, and in the past, have been called ‘aparthotels’.
They are fully-furnished properties rented out to tenants for a short-term period and include amenities that you’d expect from a hotel in the cost.
Unlike traditional buy-to-let properties, where the most common kind of contract is an assured shorthold tenancy, or AST, where the tenant lets the property for between 6-12 months, serviced accommodation allows the guest to decide how long the occupancy will last.
Serviced accommodation gets its name due to the fact that the resident is offered “services” for staying in the property. Things like housekeeping, Wi-Fi, laundry and concierge services may be included, and what other services are provided depends on the landlord and the property, with some offering a bespoke experience typical of high-quality hotels.
This is popular with those looking for a shorter stay than renting, as you get the services of a hotel combined with the personal space and privacy of an apartment or house.
While you maybe haven’t heard of the term serviced accommodation before, you’ve probably heard of one of the largest providers of it. Airbnb is one of the most popular ways for travellers to find accommodation nowadays, and has grown massively in recent years.
Indeed, many properties intended as buy-to-let property such as HMOs, have been converted to serviced apartments, as property owners look for the higher returns that serviced accommodations can offer.
Serviced accommodation can come in many forms, with serviced accommodation types such as apartments, houses, cottages, caravans, and even houseboats being popular options.
What Is a Serviced Apartment?
A serviced apartment is an apartment intended for short stays that provides guests with everything they may need.
They are fully furnished and usually come with a fully-equipped kitchen area and utensils for self-catering options.
Landlords of serviced apartments provide all the amenities and services you would expect of serviced accommodation, and again this can differ depending on what they want to provide.
Serviced apartments in the UK are becoming popular thanks to the extra space they provide compared to a hotel room and the privacy of a whole apartment. Serviced apartments are usually cheaper compared with hotels for a similar length of time.
Are Serviced Apartments a Good Investment?
So is serviced accommodation a good investment to consider? With the rising popularity of serviced accommodation, many property investors are weighing up the pros and cons of the investment strategy, and whether it might be best for them.
There are some major differences between serviced apartments and traditional buy-to-let apartments, as you will see a much higher number of tenants over a similar period due to the shorter letting periods of serviced accommodation.
In busy periods, serviced accommodation in the UK can see much higher profits than standard buy-to-let properties, however, they come with higher costs, and you are more at risk of experiencing periods with no guests or income.
There are various benefits and disadvantages to serviced accommodation investments, which we’ll break down here:
The Benefits of Serviced Accommodation Investments
- You can usually charge a higher fee per night for serviced accommodation compared to buy-to-let properties, so your profits are likely to be higher if the property is consistently booked.
- There is a higher guest turnover, so you aren’t stuck with unruly or disruptive guests for long.
- There is far more flexibility with serviced accommodation, as guests can stay for a few days or a longer period depending on what they book.
- It can be quicker and easier to sell serviced accommodation, as you likely won’t need to wait for a tenant to finish their tenancy.
- There are more unique and stylish properties available as serviced accommodations in the UK than ever, giving guests a more bespoke experience than a hotel can provide.
- You can adjust your rates depending on the season, so if tourism in your area is high in summer, you can raise the rent to take advantage of this.
- The serviced accommodation market is growing fast. 2022 saw profits rise by 40% to $8.4bn, with similar growth expected for those buying properties for Airbnb in 2023 and beyond.
The Drawbacks of Serviced Accommodation
- There can be higher costs for serviced accommodation, from fully furnishing the property to housekeeping and services like WiFi.
- There can be longer void periods without tenants if you rely on tourism for your income, while you will still have to pay the higher charges.
- You may find guests booking serviced accommodation for parties or other activities, which could damage the furnishings.
- Looking for guests more regularly may mean higher marketing costs, as you are constantly having to advertise the property online.
- Some areas of the UK, like London, only allow landlords to run their properties as holiday lets for a certain number of days per year.
These key points summarise the main pros and cons of serviced accommodation, but there are also some other issues you need to be aware of which may not occur with buy-to-let properties, such as setting up a remote pick-up/drop-off box for keys unless you have the time to meet each and every guest. However, if you opt for a more hands-off serviced accommodation investment, you can avoid a lot of the hassle that comes with owning property, as a lettings agency can take care of this on your behalf.
London's 90-Day Rule
It’s worth going into more detail about London’s policy on holiday lets and serviced accommodation, as it is becoming the basis for more proposed regulations in other cities.
Essentially, London only allows landlords to use their properties as holiday lets for 90 days a year.
In 2017, Airbnb introduced this policy for all ‘entire home’ listings in the Greater London area. This was done to comply with the Deregulation Act 2015, which allowed homeowners to use their home for holiday lets for up to 90 days a year without needing planning permission.
After landlords have used up their 90 days, Airbnb will automatically close bookings for the property until the next calendar year.
Other areas of the UK are likely to introduce similar policies in the future, including Liverpool. Levelling Up secretary Michael Gove recently announced plans that will mean landlords will require planning permission for holiday lets, although it is up to local councils to decide if they will use the planning controls.
It is currently undecided if there will be a similar rule to London with this new policy, as homeowners may be allowed to let out the home they live in for 30, 60 or 90 days, but this is still up for debate.
Cities around the UK may already have different local regulations in place. Manchester stands out in this case, levying a ‘tourist tax’ on anyone staying a night in the city. Whilst this is only £1 per night, it is expected to generate up to £3 million per year. Other cities like Edinburgh are considering a similar tax.
Check the local regulations and laws on short-term lets and tourism in your area, and if these are likely to change in the future.
What landlords should take away from this is that you should aim to get planning permission sooner rather than later if you want to be able to invest in serviced accommodation, as this will mean you can let out to guests all year round rather than a shorter time.
Who Is Renting Serviced Accommodation?
The audience for serviced accommodation is wide and varied, giving landlords of such properties a big net to target.
Many travelling for work-related purposes will have serviced accommodation booked for them by their employer, especially if they are travelling in a group. The rates are cheaper than a hotel, and they have a private area to discuss work-related matters and relax in the evening.
Tourists and groups like stag/hen dos are also common guests of serviced accommodation, making the most of lower rates than hotels will charge.
You may also find guests looking for a longer-term stay who use serviced accommodation whilst they are finding a long-term rental property, or while their main residence is not fit for living in.
In short, you can find all kinds of people looking for serviced accommodation in the UK, so landlords of serviced apartments benefit from being able to target a wide audience with their property to ensure a consistent cash flow.
Why Are Serviced Apartments Becoming Popular?
Serviced accommodations are rising in popularity across different classes of guests for numerous reasons.
- More space compared to a hotel room.
- Better value for money, as you are getting more room for similar prices to a hotel, with many even being cheaper.
- Extra privacy.
- Proximity to city centres, with good transport links. Many also have parking available.
Many different kinds of people are looking for short-term accommodation that fits these criteria, so it makes sense why serviced apartments are on the rise as a lucrative investment strategy.
How Much Can You Make From Serviced Accommodation in the UK?
How much money you make from a UK serviced apartment depends on how consistently you can keep it booked with guests.
With the right investment, you can generate high rental returns of an expected 10-15%, with as much as £68,000 income generated depending on the unit type.
There are some main differences in income with serviced accommodation compared to buy to let properties.
Unlike buy-to-let properties, there can be longer void periods with serviced apartments where you are without a consistent cash flow of income. With traditional buy-to-let, you will find most tenancies run from between six to twelve months.
This means landlords of buy to let properties can expect the same amount of money each month, whereas, this may fluctuate for serviced accommodation.
If you can consistently house guests, then the potential for returns can be massive. However, if there are quiet periods or long waits between guests, then you will find your returns fluctuating from month to month.
Add into this the increased costs of a serviced apartment including furnishings, housekeeping and services like WiFi and bills, and you’ll need the extra earnings to keep the lights on when you don’t have guests staying in your property.
It’s worth keeping in mind that higher-quality properties in prime locations can generate higher nightly income, so it’s important to consider location and property type if this is an investment you’re considering.
To put it simply, there is more of a risk/reward with serviced accommodation, as you can earn far higher returns if you are investing for monthly income yet face the risks of potential long periods of waiting if you don’t invest in a high-demand location.
How to Make a Serviced Accommodation Investment
Investing in serviced accommodation is similar to investing in buy-to-let property, and many of the things you look for will be similar.
Ideally, find a location that will draw in lots of guests. For serviced accommodation, this can be a lot more varied than with traditional buy-to-let properties. An isolated country cabin can be just as appealing to many as an inner-city apartment. Often, however, city centre apartments can generate higher yields due to affordable purchase prices paired with high average short-term rental costs.
Different types of serviced accommodation will appeal to different types of guests, so ensure you understand what your audience is looking for when choosing what kind of serviced accommodation investment you want.
The next step is to purchase the property you have chosen. This operates very similarly to buying traditional buy-to-let property, and you will likely need to take into account extra stamp duty rates for a second property.
Once you have bought the property, there are several important issues you need to resolve before it is fit to house guests:
- The furnishings of the property, such as bedding, cooking appliances, and living areas.
- What services/amenities will be on offer? Will there be wifi, laundry, or more luxurious services like a gym, swimming pool or concierge?
- Who will do the housekeeping/cleaning between guests? If you hire someone, how much will you need to pay them?
- Who will manage the property? Will you do it yourself or hire someone to do the hard work for you?
- How will the guests check in? Will there be a key drop-off, or will someone meet them there?
- How will you advertise your property? Will it be on booking.com or Airbnb?
If you choose to advertise online, you may find guests booking your property at very short notice, sometimes less than hours before they are due to check in! You need to be organised and have all these issues addressed before you open your property to guests.
Once this is all prepared and organised, you can begin advertising to guests and collecting income from your serviced accommodation investment!
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Where Can You Find Serviced Accommodation Investments?
Before you make a serviced accommodation investment, you’ll want to make sure you are looking for them in the right place. There are several ways you could go about this, and we’ll discuss several popular methods that serviced accommodation investors use now:
1. Invest with a Property Investment Company
Property investment companies work with developers to sell buy-to-let properties directly to investors, cutting out middlemen like estate agents.
From time to time, you will find property investment companies selling properties specifically built to be serviced accommodation, and these are some of the best investments you can make.
Not only will you be buying property designed with the specific purpose of being used as serviced accommodation, meaning it will likely come with added amenities that will help draw guests to your investment, but because you are buying directly from the developer, the price is likely to be below market value.
Added to this, if developers are building properties with the specific purpose of being used for short-term rents, then they will likely secure the correct planning permission to allow landlords to rent out their serviced accommodation all year round.
New-build properties are also often constructed in areas of heavy regeneration and in major cities, where many potential guests are likely to need high-quality short-term lets without wanting to pay hotel prices.
2. Convert a Residential Property
One of the most common methods of investing in serviced accommodation is to buy a residential property or use one they already own and convert it to be used as a holiday let, either all year round or during busy periods such as summer.
This gives you a much wider net to cast when looking for a property you can use as serviced accommodation, as you can find residential property for sale and filter out ones which don’t fit the criteria you have set.
Guests often rent these kinds of serviced apartments and serviced accommodations because of the homely feel they bring to their stay, and because many converted residential properties will have parking onsite or nearby to allow for easy travel.
However, this is a costly method of investing in serviced accommodation, as not only will you have to buy your chosen property but also pay for any furnishings, conversions or renovations that you want to include or make.
You may also have to contend with getting planning permission from your local council for holiday lets, as with the aforementioned new regulations coming into effect soon, you might only be able to rent out your serviced accommodation for a short time every year.
This does add a degree of flexibility though, as when you are not able to use your serviced accommodation as a holiday or short-term let, you can rent out to regular tenants with a medium or long-term let and charge a higher level of rent thanks to the furnishings you provide.
3. Use Your Own Home
The third option for those who want to begin investing in serviced accommodation property is to use their own home for short-term lets, either by renting out a spare room or the entire property whilst you are away.
This is far and away the cheapest method of investing in serviced accommodation, as it only requires ensuring where you live is tidy, clean and presentable for when the guest arrives. You’ll already have amenities they would expect like wifi and a cooking area, without needing to pay any extra.
If you are going away on holiday or travelling due to work for a long period, you can use your home as serviced accommodation to earn a passive income while you are away. Rather than seeing bills rack up or leaving an empty house, you’ll be able to make money whilst enjoying your holiday, although you won’t be able to do this long-term.
There are some downsides to this method, however. Firstly, you’ll be letting strangers into your own home regularly. You and your family will need to be comfortable with this, and you should probably do some kind of background check to be safe.
If you rent out your home to someone while you are away and return to find it damaged or in disrepair, you’ll have to deal with the hassle and discomfort of having it repaired. This may put you off using your home as serviced accommodation in future.
Secondly, you likely won’t be able to collect rental income from serviced accommodation all year round as you can with the other methods of investing we have discussed. If you choose to rent out your entire home rather than just a room, you will naturally only be able to do this when you are away.
FAQs
What Is Meant by Serviced Accommodation?
In the most simple terms, serviced accommodation means the landlord provides ‘services’ to the guest on top of just a place to live. Commonly these include amenities like housekeeping and WiFi but vary from property to property.
What is an Example of Serviced Accommodation?
A good example of serviced accommodation would be a fully-furnished apartment used for short-term lets, that has everything a tenant might need to live in without them having to bring items like furniture or kitchen utensils with them.
It would likely have amenities such as free wifi and housekeeping services and may include additional facilities such as car parking or access to an onsite gym, depending on how the landlord sets it up.
What is the Difference Between Serviced Accommodation and Holiday Lets?
Practically, there is little to no difference between serviced accommodation and holiday lets. Both types of buy-to-let offer guests the same experience, being a fully-furnished place to stay that is somewhere between a hotel and a residential property.
However, holiday lets are more likely to only be available or busy at certain times of the year, such as summer holidays or major tourist events in the area. Serviced accommodations on the other hand are more likely to be available and busy all-year round due to the wider array of potential guests.
Is Airbnb Serviced Accommodation?
Airbnb is a hosting platform allowing landlords to advertise their serviced accommodations. If you’re browsing properties on Airbnb, it’s almost certain that you’re looking for serviced accommodation.
It’s undoubtedly the largest portal for UK serviced accommodation, with a current total of over 6 million active listings worldwide, although many landlords also advertise their properties on other sites like booking.com as well to help advertise.
Is Serviced Accommodation Illegal?
If you bought your property using a buy-to-let or residential mortgage, it will be classed as mortgage fraud if you use it as serviced accommodation, as it is not what the property was intended for when you borrowed the mortgage.
However, you may be able to contact your mortgage provider and see if they will give you ‘consent to let’, but this is unlikely.
Mortgage fraud has serious consequences, so if you want to invest in serviced accommodation, ensure your mortgage provider will allow you to do so before you go about it.
Invest in Serviced Accommodation With RWinvest
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With offices in Liverpool, Manchester and London, we have experts all over the UK able to help you find the best investments possible for your budget in some of the best areas to invest in.
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John Brady
John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.
