Complete Guide to Property Investment Strategies - Serviced Accommodation

Please note: This is Chapter 3 in the Complete Guide to Property Investment Strategies, focussing on Serviced Accommodation.

The aim of this chapter is to equip you with the knowledge around investing in Single Lets and where it sits on the TKM Triangle so you can assess whether such a strategy is for you. (Hint: You need good management, service levels and people skills. This is the hospitality industry).

Serviced Accommodation Definition

This is the modern day term for short let accommodation, usually subdivided further into:

  • Holiday Lets: Typically letting by the week or long weekend in areas popular with tourists. Property usually located in popular destinations with tourists such as Devon and Cornwall.
  • Short Term Accommodation: Letting by the night, often to contractors, people visiting for work purposes or a conference and also including tourists. Typically located within cities.

Property Investing - Serviced Accommodation and Holiday Lets Explained

Elements to Consider

Similar to HMO’s, this is a yield enhancement strategy. Typically, the pro-rata charge per night is way in excess of that charged for a single let.

However, it comes at a cost. Things to consider are:

  • Specification. Such properties need to be fully furnished, down to towels, crockery, cooking equipment, cutlery and bedding. A TV and Wi-Fi would be expected. You will need several sets of bedding and towels to allow for the changing and laundry in between guests.
  • Management. If letting by the week or by the night, you have a large turnover of guests and the property will need to be cleaned, bedding and towels changed and any missing or damaged items replaced. This comes at a cost.
  • Response times. If people are on holiday for a week and are paying a premium for the privilege, then they want everything to work, all the time. Any problems, especially with heating and hot water will need to be fixed immediately. No holiday maker wants to wait 3 days for an engineer to turn up.
  • Marketing. Such properties need constant and efficient marketing, through specialist sites like AirBnB, or specialist holiday letting websites such as HomeAway. Fees are much higher than for standard AST lets.
  • Voids. Typically much higher, especially for holiday lets. Filling a holiday let in Cornwall in summer may be relatively easy, but in winter?
  • Financing. Whilst lenders are slowly coming around to providing financing options for serviced accommodation, this is still in its infancy and restricted. This could scupper your plans before you start.
  • Permission. This is a strategy best suited to freehold houses. Many flats will contain a sub-clause in the lease prohibiting short term lets. Equally, neighbours may dislike a constant stream of guests coming and going at all hours.
  • Insurance. This requires specialist (and more expensive) insurance.

Key Consideration

All of the above are surmountable problems and for a well-run property in the right location, the returns will be worth it. However, the key learning to takeaway here is that you are no longer a landlord in the property letting business, but a manager in the hospitality business, with all that entails. Guests will expect (and are paying for) a much higher standard of property and service. You need to be sure you can deliver this and if you outsource it, be mindful of the large commission costs such companies will charge.

Because of this, I would consider Serviced Accommodation an advanced strategy to be considered once you have some experience of being a landlord under your belt.

I have a property in a perfect holiday let location (Fuerteventura in the Canary Islands) but prefer to let it out to long term tenants for the lower hassle factor!

TKM Triangle: Serviced Accommodation

Serviced Accommodation has the following TKM Triangle characteristics:

  • Time. The management of a Serviced Accommodation property is much more intensive. Guest turnover is much more frequent, leading to increased demands on cleaning and laundry. Expectation levels are higher, meaning a much more rapid response to issues will be required. You can expect more out of hours calls with guests arriving late, for example.
  • Knowledge. You need different knowledge to anything let on an AST such as a Single Let or a room in an HMO. You will need to understand the nuances of the market, the different marketing portals, manage bookings and customer communication and the level of expectation. You are, as mentioned, effectively running a hospitality business.
  • Money. You do not need much more money that for a comparable Single Let. All the costs of acquisition and refurbishment will be similar. The main difference will be that whilst a Single Let can be let unfurnished, a Serviced Accommodation unit will need complete furnishing from the furniture down to the cutlery.

Property Investing - TKM Serviced Accommodation Triangle

If you count customer service and people management as part of your core skill set, then with the right property in the right location this can be a more lucrative investment for a comparable outlay to a Single Let.

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