Investing in serviced accommodation has become a popular choice for property investors as buy to let yields have struggled with increasing buy to let mortgage rates, higher costs through increasing inflation and higher property values in many desirable areas.
Top 10 reasons for investing in serviced accommodation.
Here’s Acorn.finance’s top 10 reasons why property investors are moving into serviced accommodation:
1. High Rental Yields:
Serviced accommodation can provide higher rental yields compared to traditional long-term rentals, especially in prime locations or areas with high demand for short-term stays.
Holiday or short term accommodation offers flexibility in terms of rental duration. Investors can rent out the property on a nightly, weekly, or monthly basis, allowing them to cater to different types of guests. Lenders of Serviced Accommodation Mortgages might impose limits on the maximum duration of a visit, if that’s an issue talk to your Acorn.finance broker about the flexibility you need.
3. Growing Demand:
The demand for short term accommodation is increasing, driven by factors such as business travel, tourism, and the rise of platforms like Airbnb. This trend presents a lucrative opportunity for property investors.
4. Shorter Void Periods:
With serviced accommodation, the time between bookings or occupancy tends to be shorter compared to long-term rentals. This helps reduce void periods and ensures a steady stream of income.
5. Rental Upscaling:
Property investors can charge higher rental rates for serviced accommodation compared to traditional rentals. The ability to provide additional services and amenities justifies the premium pricing.
Investing in serviced accommodation allows property investors to diversify their portfolio beyond traditional residential rentals, spreading their risk across different types of properties.
7. Tax Benefits:
Serviced Accommodation does not come under the Section 24 tax grab so interest charged on your serviced accommodation mortgage will still attract tax relief. There may be tax advantages associated with operating serviced accommodation, such as deductions for operating expenses, furnishing costs, and capital allowances, check with your accountant for more details.
8. Hands-Off Management:
Property investors can opt for management companies or property management services to handle the day-to-day operations of serviced accommodation. This allows for a more passive investment approach but do be aware of the costs of the management company, they will typically charge a percentage of all bookings and then various fixed costs for cleaning, bedding and maintenance. This can really eat into your profitability, especially if you are paying a higher rate for your serviced accommodation mortgage.
9. Potential for Capital Appreciation:
In popular tourist destinations or areas with high growth potential, serviced accommodation properties may experience capital appreciation over time, providing additional returns on investment.
10. Personal Use:
Property investors can also enjoy the benefit of using the serviced accommodation property for personal stays during periods when it is not rented out, providing a convenient and cost-effective accommodation option.
While investing in serviced lets offers numerous advantages, it’s essential to consider the associated risks. Here are 5 risks for your business by doing so:
1. Regulatory Compliance:
Short term accommodation may be subject to local regulations and licensing requirements. It’s crucial to ensure compliance with planning laws, safety regulations, and any necessary permits or licenses.
2. Seasonal Fluctuations:
The demand for serviced accommodation can be seasonal, which may result in lower occupancy rates and reduced income during off-peak periods. Investors need to plan for these fluctuations.
3. Operational Costs:
Running a serviced accommodation business involves additional costs, such as furnishing, maintenance, cleaning, utilities, and marketing. These expenses should be carefully budgeted to maintain profitability.
4. Increased Competition:
As the popularity of serviced accommodation grows, so does the competition. Investors need to differentiate their offerings, provide exceptional guest experiences, and stay ahead of competitors to attract bookings.
5. Reputation Management:
Maintaining a good reputation is vital for success in the serviced accommodation industry. Negative reviews or incidents can impact future bookings and damage the business’s image, requiring active management and customer service.
Overall, investing in serviced accommodation can be a lucrative venture, but it requires careful planning, market research and effective management to mitigate risks and maximise returns. Getting the right serviced accommodation mortgage is just one aspect of this but working with the experts at Acorn.finance will help get the funding right!