Ultimate Guide to Serviced Accommodation Investments
Interested in making a serviced accommodation investment? Enquire today about Rice Works Liverpool, serviced apartments from £154,950 offering 10-15% predicted rental yields.
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Serviced accommodation is one of the fastest-growing sectors of the property market, and one that savvy landlords should be sure to watch.
With it becoming increasingly popular with tourists, business travelers 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 exactly is meant by serviced accommodation? 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.
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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.
- 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. Airbnb saw profits rise by 40% to $8.4bn in 2022, with similar growth expected for 2023.
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.
There are 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, but these key points summarise the main pros and cons of serviced accommodation.
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.
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. Homelet’s Rental Index states that the current average rent in the UK is £1,184 per calendar month. This would give an average annual rental income of £14,208.
According to Airbtics, Airbnb hosts in the UK in the UK can expect to earn an average daily rate of £175. This would mean you would need to house guests in your serviced accommodation for less than 10 nights a month to make the same amount as the average UK monthly rent.
With this average in mind, if you wanted to make £20,000 a year from your serviced accommodation investment, you would need to house guests for at least 115 days a year.
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 than the Airbnb average, 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.
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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!
Invest in Serviced Accommodation With RWinvest
RWInvest is one of the most experienced property investment companies in the UK, with over 18 years of helping clients achieve financial freedom through property investment.
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.
Our award-winning client care helps you every step of the way to make investing in property a hassle-free effort.
If you’re interested in investing in serviced accommodation in 2023, don’t miss our latest opportunity, Rice Works. Part of the Heap’s Mill development, this Liverpool project offers serviced apartments available to invest in from £154,950. For our 2-bed units, projected earning potential is up to £68,000 a year!
Contact us today to learn more about our best remaining investment opportunities.
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.
