A Breakdown of the Benefits to Investing in Serviced Apartments
We all know that return on investment, when you're investing in serviced apartments is fantastic but there are other benefits to it as well, including a better tenant profile, an easier exit strategy and the guarantee that your apartment will generally be kept in a good condition.
Rob: Hi, it's Rob from Property Investments UK, and in today's video we're going to be looking at the benefits of investing in serviced apartments, other than just the high rental yields and income that you can generate from this kind of property.
So, very often, serviced accommodation is marketed and looked at as a fantastic rental strategy because it can give you high rental yields, but there are lots of other benefits that go along with serviced accommodation that some people just aren't necessarily aware of, or they've not heard of or seen before.
So, I wanted to touch on those effectively in this video.
So, what do you tend to find are the main benefits of serviced apartments?
What are the reasons that you guys got into the serviced model to start with? Also, what is it you see that helps clients the most when it comes to serviced accommodation?
The Apartment Is Kept In A Great Condition
Paul: The ease, and obviously, without touching on the income, and the little things that people don't think about, it's the fact that you are taking all the risk of any normal AST out of the equation.
This is terms of how your apartment is left, people not paying their rent, et cetera.
Then, there are your exit strategies when you come to sell your apartment.
Basically, it's cost effective for everyone.
Because we will do a weekly clean, and a weekly report. We will maintain the apartment on a weekly basis, and we can instruct you if anything needs doing because of wear and tear, et cetera.
Your apartment will be kept in a better condition.
Obviously, some tenants are messy, some tenants treat the places like their home. People aren't always perfect.
But there are risks involved with a normal AST as well.
Rob: When it comes to normal buy-to-let tenants, you don't necessarily have the availability to go into those properties.
Or, you don't need to.
But, you're not able to go into those [buy-to-let] properties regularly, every couple of months.
So, you might only see the property six months, and that might be too late to replace broken items, to realise there's been a leak in the ceiling that they never told you about it.
Paul: Or there is damp or whatever it may be.
And ultimately, these things will always come out of the owner's pocket, which comes out of their profit.
So, when it comes to a serviced apartment we can monitor problems like that, and we can act on them very quickly.
I also think it comes to, what we've found with people who've been on the serviced apartment model - certainly, in Chester, where we've been running the longest - they have no real desire to sell.
This is because the returns are so good.
But, if you do want to sell, then you will be selling your apartment probably very quickly because it's in a spick-spack condition, and ready to sell.
You're not going in and saying, "I've got to give this property refurb", et cetera.
And because we took care of other apartments and have service charges, the outside is always maintained, the communal area is always maintained.
I think it just gives a lot of advantages on that front.
It gives you peace of mind, knowing that your apartment is always in a great condition.
Because I'm sure that this issue must always be a concern for a lot of owners of privately managed flats.
The Tenant Profile
Rob: Our portfolio started out as terraced houses, semi-detached houses, mainstream buy-to-let tenants, and then we've gone into different things as we've grown it from there.
We've got properties that have taken a bit of a hammering because of the tenant profile.
Maybe they've been transient tenants and have turned over quicker.
There's always maintenance work that needs doing or they've done damage that the deposit won't fully cover it.
And there are tenants there that don't leave the property, don't pay rent, don't pay to keep the property looked after.
Or, you don't go into it for a couple of months, as you said, you see damp, you see a leak that they never told you about.
With the serviced apartments that we have now in our portfolio, the difference is the tenants that are living in it.
Although they're not necessarily treating it as well as they would their home, it is nonetheless, a very high-end tenant profile.
So, they're used to looking after their properties, and they're aware that people are going to go into the property on a regular basis, like cleaners.
As such, they generally tend to leave the apartment in a good condition.
Paul: They clean before the cleaners.
Rob: But also you have somebody on hand that can give you feedback directly, so, if something's wrong, you can jump on it straight away.
Paul: We've also got a point where we can go back to as them as well.
Because even though we don't deal directly with the companies that are renting the apartment, we know who these companies are.
So if we've got any problems, if we've got problem tenants in there, there's a recourse.
We can say, "Right, okay, we're having a problem here."
It's highly unlikely there will be a problem because they [the tenant] obviously don't want to be in trouble with the company they're working for.
Rob: Yeah, no one is going to go back to their manager and say, "we had parties there and trashed the place," because it's going to look really bad.
The Exit Strategy - When You Want To Sell
Paul: The idea is, that in 10 years your serviced apartment will look the same as it does today.
So, if for any reason you do want to move on, sell, release equity - because your circumstances have changed - you've got something that you can almost immediately put on the market.
Rob: Yeah, so with a serviced apartment the rental income's great, but then there are other benefits like the maintenance. And ongoing management at the property's pretty good as well.
Anything else you can think of that's great in terms of extra benefits and with the serviced model?
Paul: No, I think the main thing is that serviced accommodation brings a potentially better clientele.
Rob: I think from our end, one of the benefits we've seen, is that investing in serviced apartments, forces you to buy in the right locations.
Previously, when we've been investing in property - where we've done all the research on it, and everything looks great - we will then find another property for less money.
Something else catches your eye, and you think, "Oh, that's a bit cheaper, and it's only quarter of a mile away, so let's go for that one".
Because of this, we've ended up buying places that are maybe not in the right part of town or somewhere that hasn't got the right tenant profile.
With serviced accommodation, however, you have got to be spot on.
Paul: There could be something that's a mile away from here that's £20,000 cheaper.
But that doesn't mean it's going to be better for you in the long-run.
That £20,000 can be lost in a heartbeat if the returns aren't high enough.
But also on your resale as well.
Because you're buying in a very good location, and that goes back to the original point about an exit strategy.
As a standalone investment, a serviced apartment is a good investment.
It's just got the added incentive that you can get higher yields.
Because I think everyone always associates high yields with students. And what we're trying to incorporate, what we have incorporated, is that you can get a high quality buy-to-let, getting up somewhere towards student yields, which you can also finance.
Because, obviously, or generally speaking, student buy-to-lets are always a cash buy.
Putting It All Together
Rob: So, when you are investing in serviced flats, the yields are good and you get good exit strategies.
When we looking at properties, we have a model, a process that we brought in a number of years ago.
An ABC plan, 7 rules.
So yes, the ultimate aim, for any purchase of a property, might be to keep it and add to your portfolio.
But as situations change, are you able to sell it? Do you have a marketplace that's not just for investors, but also homeowners?
Who exactly would want to live there? Or buy it?
I think that's important with any property investment to look at, and make sure you've got, an exit strategy.
Serviced accommodation really allows you to have that.
Paul: Yes, and from a company point of view as well.
Because we're on this model, and because we deal with investors from time to time, you've also got the option of selling it to the residential market.
Because it's a normal buy-to-let, but you've also got an investor database that would be quite happy to shift it on for you.
Because sometimes, if you can market a property, and say, "Right, okay, this is x property, it's had on average an 8.5% return for the last six years," that is very attractive to an investor.
So you've got your exit.
By going through a company that is multifaceted, the more it can do.
Rob: It gives you options.
So obviously we know the benefits of serviced accommodation in terms of yield and income, but I think there are other tangible benefits that other people sometimes forget that the serviced model can provide them with.
There are, obviously, mainstream, vanilla buy-to-lets that can work great.
There are HMOs that can work great.
There are rental strategies.
Investing in serviced apartments is just another thing to consider that can maybe give you slightly better returns in your portfolio, diversify your portfolio a little bit better, and also give you some great locations as well.
Serviced flats are great in terms of the long-term resale, growth as well. It really works.
Rob: Hopefully that gives you some context of why serviced accommodation can really add some value to your potential portfolio.
Hopefully, you have found that this mini-series on serviced accommodation gives you a good round up.
Any questions or anything, please feel free to ask, always happy to help.
Just want to say thanks very much Paul from Residential Estates for his help with the videos.