What is serviced accommodation?
Serviced accommodation is experiencing significant growth in the British property rental market, offering real advantages to landlords and guests alike. Positioned between a conventional holiday-let and a hotel, this type of lodging is gaining popularity among tourists, business travelers, and individuals seeking extended stays.
What is a serviced apartment?
A serviced apartment refers to a fully furnished flat that offers amenities, housekeeping, and various services to guests as part of the rental fee.
Similar to hotels, serviced apartments provide amenities like laundry and cleaning, and some may even have gyms and concierge services, while still maintaining a self-catering environment.
Typically, serviced apartments come with a complete kitchen, separate sleeping area, and bathroom, and they also include internet and all utilities in the package.
What does serviced accommodation mean?
In essence, serviced accommodation signifies precisely that – landlords offer 'services' to guests staying in the lodging, encompassing basic housekeeping to more extensive amenities.
Certain purpose-built serviced apartment complexes boast on-site gyms, restaurants, shops, and 24-hour concierge services.
However, serviced accommodation need not be confined to apartment buildings; it can encompass any residential property rented out with added services, catering to short-term rentals ranging from one night to several months.
What are the benefits to landlords of serviced accommodation?
Increasingly, landlords and property owners are turning to serviced accommodation as a way to maximize rental property yields.
Unlike traditional buy-to-let properties leased on a six-month assured shorthold tenancy (AST) agreement, serviced accommodation offers greater flexibility with the option to rent for short or extended periods.
This arrangement presents an opportunity to significantly boost rental income compared to monthly AST payments. For instance, renting out a property for short stays at £80 a night or £560 a week may surpass the £600 monthly income from an AST.
Although there might be occasional void periods, location and marketing efforts can lead to surpassing the monthly AST rental income.
Furthermore, property owners find that selling a short-term rental is often easier and quicker since there are no tenant considerations involved.
What are the drawbacks to landlords of serviced accommodation?
While the potential income from serviced accommodation can be appealing, several considerations should be kept in mind:
- The responsibility of arranging and covering the costs of essential services like housekeeping, WiFi, gas, and electricity lies with the landlord.
- Marketing expenses may be higher compared to regular buy-to-let rentals, as attracting guests regularly is necessary.
- Income may decrease during void periods, particularly in winter months.
- The property must be furnished to a high standard that aligns with the rental charges for guests.
- If self-managing the property, the landlord must be readily available to address guest inquiries and any arising issues. Alternatively, using a specialist letting agency incurs fees to be factored into yield calculations.
- Arranging a meet and greet for new guests or setting up a coded security box for key retrieval is essential.
What should serviced accommodation include?
Serviced accommodation offers a homely alternative to hotel rooms, providing a complete living space with all essentials included in the rental cost. Landlords are expected to provide:
- A fully equipped kitchen with all necessary cooking facilities, a dishwasher, and a washing machine.
- A bathroom.
- A furnished living area.
- WiFi and a TV.
- At least one separate bedroom or a dedicated sleeping area for studio apartments.
- All utilities, including water, electricity, and gas if applicable.
- Housekeeping service, either weekly or at more frequent intervals.
Do serviced accommodation lets have to be furnished?
Yes, in order for a property to be classified as serviced accommodation, it must be fully furnished.
What type of guests stay in serviced accommodation?
Serviced accommodation caters to a diverse range of guests, including tourists, business travelers, and individuals seeking temporary housing during house transitions or renovations.
Companies often reserve serviced apartments for employees on extended work assignments or attending training sessions away from their usual location.
The flexibility to offer short-term stays or longer durations presents landlords with unique market opportunities beyond traditional buy-to-let setups.
Landlords can set varying price rates based on the length of stay or seasonal demand, providing options for both leisure and business travelers, including those working away from home for an extended period.
Why are serviced apartments becoming more popular with guests?
- Serviced accommodation offers advantages to both landlords and guests. Guests can enjoy:
- Ample space, providing more room than a standard hotel room.
- Better value for money, as serviced apartments, are often more cost-effective than comparable hotel rooms.
- Increased privacy, with exclusive use of the entire apartment or house.
What is the difference between a serviced and a non-serviced apartment?
Providers of serviced accommodation are obligated to offer specific perks to guests, including regular housekeeping.
In essence, a non-serviced apartment may be identical in type to a serviced one but lacks the added amenities.
Non-serviced apartments typically operate on a self-catering basis, where guests are responsible for cleaning during their stay. Additionally, these apartments are unlikely to have on-site security or reception staff available to assist with any concerns.
Is serviced accommodation different to a holiday rental?
Serviced accommodation and holiday rentals have distinct variations.
A serviced apartment accommodates guests from one night to several months, catering to diverse guest types. On the other hand, holiday rentals are usually residential properties rented to vacationers for short periods, like weekends or weeks, without additional servicing.
Are serviced apartments a good investment?
The UK's rental sector is witnessing significant growth in the serviced apartment segment.
Just like any rental property, be it buy-to-let, holiday rental, or serviced accommodation, location plays a crucial role in maximizing income and preserving or increasing the value of your investment.
Every property investment carries some level of risk, so it's essential to thoroughly research the area, gauge the demand for serviced accommodation in that region, and assess the property's potential before making any financial commitments.
Is serviced accommodation profitable?
Once more, the location plays a vital role. Opt for a sought-after area and price your property reasonably, and attracting guests should be smooth sailing. However, if you invest in a less popular location, you might face substantial periods of vacancy.
Ensure that your rental income covers not only mortgage payments and landlord obligations but also the expenses related to guest services.
On the whole, serviced apartments typically yield higher rates compared to standard buy-to-let properties leased under an AST, ranging between 6-9% compared to 3-5%.
Is planning permission required for serviced accommodation?
Depending on the local authority's perspective, you might require planning permission to convert a residential or buy-to-let property into serviced accommodation.
The key consideration is whether the local authority views the change as a 'material change' in use, from residential (C3) to something resembling a hotel or guest house (C1).
Since there's no specific planning designation for serviced accommodation, which lies between buy-to-let and a hotel, seeking advice from the local authority before purchasing or converting a property is crucial.
Some councils are adopting a stricter stance due to concerns that serviced apartments, with ever-changing guests, may cause disruption in shared communal areas, affecting long-term rental property availability.
Certain councils impose restrictions on the number of days you can operate as short-term lets, potentially impacting your ability to generate sufficient income for a sustainable business.
What is the 90-day rule?
In Greater London, landlords are restricted to short-term lets for a maximum of 90 days annually, a measure implemented to safeguard long-term rental housing supply. The limited availability of rental properties drives up buy-to-let rental prices.
For short-term lets exceeding 90 days in a calendar year, landlords must seek planning permission, but approval is seldom granted for existing residential properties.
Since 2017, AirBnB automatically removes listings in London once they reach the 90-day threshold.
What type of mortgage do I need for serviced accommodation?
To finance serviced accommodation, a commercial mortgage is necessary as a standard buy-to-let mortgage won't suffice. Buy-to-let mortgages are tailored for long-term rentals with minimum six-month ASTs.
A serviced accommodation mortgage might include a limit on the duration a property can be let to the same occupier, so it's essential to consider any conditions while promoting your property.
Can leasehold studios become serviced accommodation?
Leasehold studios and apartments can be transformed into serviced accommodation, provided that the lease terms permit short-term lets. While many leasehold apartments allow AST rentals, it's crucial to review the terms to ascertain whether short-term lets are allowed.
How to set up serviced accommodation
When establishing serviced accommodation, ensure the following are in place:
- Appropriate Mortgage: Avoid using buy-to-let or standard mortgages, as it breaches the lender's terms.
- Renting Permission: Check if your lease permits short-term lets.
- Adequate Insurance: Obtain specialized insurance for comprehensive coverage.
- Planning Permission: Consult the local council for regulations on serviced accommodation, rental periods, and potential change of use requirements.
Additionally, fully furnish the property, ensure utilities and WiFi are operational, and arrange for servicing aspects like cleaning and laundry. You can handle this yourself if available, or hire a professional company to manage guests and services, which incurs additional costs.
Can limited companies own serviced accommodation?
Serviced accommodation can be owned by limited companies, but there are pros and cons associated with this approach.
Three primary reasons for choosing a limited company to own serviced accommodation are:
- Better tax control, allowing you to declare profits strategically.
- Financial benefits when managing multiple properties under one limited company.
- Facilitating inheritance tax planning.
However, it's essential to consider the costs involved in establishing and managing a limited company. Lenders may apply higher interest rates to loans for limited companies compared to private individuals, and the application process can be more complex.
Can you do rent-to-rent with serviced accommodation?
Rent-to-rent is an arrangement where a "renter" commits to paying a fixed rent to a landlord for a specific duration. The renter then sublets the property to a "tenant" to generate profits, especially with serviced accommodation involving short-term lets.
For instance, the renter might pay the property owner £500 per month and then charge guests £80 per night for the same property.
However, this strategy carries risks as there is a possibility of incurring losses if the property is not rented out enough days to cover the rental payments.
What insurance do I need for a serviced apartment?
Having appropriate specialist serviced accommodation insurance is crucial, as certain coverage is specific to these policies. Opting for the wrong insurance, such as standard buy-to-let or home insurance, can result in gaps in coverage or invalidation if the insurer isn't aware of the property's use.
For instance, inadequate employers' liability insurance, which is legally required if anyone is employed in relation to the property, could be a consequence of having the wrong policy. Additionally, there might be limited loss of income cover or no theft by guests cover, as standard landlord or household policies may demand proof of forcible and violent entry or exit.
While some insurers offer short-stay extensions to home insurance for properties rented out for a few weeks a year, a bespoke serviced accommodation policy is necessary for properties let out full time.
What is covered under a serviced accommodation insurance policy?
Serviced accommodation insurance shares similarities with holiday home insurance but offers specific coverage for individual flats, blocks of flats, houses, and unique short-term rentals like converted shepherds' huts.
In addition to the typical coverage for buildings, contents, and property owners' liability, Alan Boswell Group's serviced accommodation insurance includes:
- Employers' liability
- Optional extra for pet damage
- Business interruption, which covers loss of rent from confirmed bookings and expected income based on booking history and seasonal changes
- Rent-to-rent contracts
- Theft and malicious damage by guest cover
- Coverage for periods when the property is unoccupied, ranging from 30 to 45 days on multiple occasions throughout the year.
