Beginners Guide To Serviced Accommodation In The UK

For every aspiring property investor in the serviced accommodation sector in the UK who doesn’t know where to start…

According to Wikipedia, serviced accommodation is a type of furnished, self-contained property designed for short-term stays, which provides amenities for daily use.

Bear in mind that serviced accommodation is not restricted to urban and city centers; you can also provide it in rural or remote locations. The only problem with providing it in a rural environment is that you might find it difficult to attract regular tenants.

If for one reason or another, you are afraid of renting out your residential property, then, you should consider the option of serviced accommodation.

There has been significant growth in the serviced accommodation sector of the United Kingdom.

This growth is evident in the number of properties that are being made available and the rise in the number of online networks which attract tenants who seek this type of accommodation.

Based on the rates charged and the length of tenancy, there are at least four different types of markets or tenant groups you can target within the service accommodation sector in the UK.

They are:

  • The disaster recovery tenant
  • The relocating tenant
  • The corporate event or personal event tenant
  • The corporate tenant

While this is not an exhaustive list, it gives you an idea of the type of client you can target based on the factors at your disposal.

For example, you can’t target the corporate when your apartment is semi-urban. Similarly, you would need to market aggressively and spend time and resources to manage your property before you can attract the personal events tenants.

While there are high tenant turn-over segments within this sector, it also has the highest competition.

Point is, make sure your resources and the unchangeable factors suit the market segment you are targeting.

Pros

1. If you plan to stay at a place for a long period, service apartments are cheaper than staying in hotels. This is one of the reasons why companies rent serviced accommodation for some of their employees who will be having a medium to long stay. For example, a 5-month training program

2. For the best services and value for money, serviced accommodation is the best option

3. If you are leasing out serviced accommodation, it provides you with funds you need to maintain your property

4. Serviced accommodation appeals to a large pool of tenants,  most of whom will prefer it rather than deal with fluctuations in property prices when buying or renting on the open market

Cons

1. Getting finance is one major problem with serviced accommodation. While some mortgage lenders will lend with a low percentage of the purchase price, some won’t lend at all.

2. Since serviced accommodation is usually leased for long periods, they can only be sold to investors.

3. It is said that most serviced accommodation has poor capital growth.

4. Mortgage lenders put restrictions on how many times / how long you can use a property for serviced accommodation purposes.

Revenue options

There are two main options for handling serviced accommodation:

1. Targeting short-term tenants that will stay for a maximum of 5 days, then, charging them premium rates. A major disadvantage of this option is that you will have less certainty in your occupancy.

2. Targeting contracts with firms who would need accommodation for their contractors or consultants. A disadvantage of this option is that you have to offer a better rate, but your occupancy would be more certain.

If you don’t mind charging less than premium rates, then, the second option is better and if you are able to sign a secured long-term contract with these firms, it can be a highly profitable investment for you. It is also profitable for the company because they can get a significant reduction in one of their fixed costs.

Conclusion

While you can make healthy profits in providing a valuable and growing service, you need to research and plan carefully because as with anything else, this type of investment also has its’ own risks. You must understand the rules and guidelines before delving into it.

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