3 Common Problems for Landlords, Investing in Serviced Accommodation
With serviced accommodation, return on investment can be fantastic. But, managing a serviced flat involves a lot of planning and a lot of work. Today Rob and Paul Winder from Residential Estates in Chester look at 3 common problems that landlords face when they're trying to break into the serviced market.
Rob: Hi, it's Rob from Property Investments UK and in today's video, we're going to be looking at serviced accommodation and three quite often common problems that some landlords, some investors run into when they try and start-up serviced accommodation from scratch.
So we know about all the benefits of serviced accommodation and how it can really help add value to your portfolio and give you some fantastic returns on your investments.
But there are some downsides that some investors can kind of come to a cropper on if they're trying to do it themselves and don't have any experience of serviced accommodation.
Say, they just like the idea of it but when they get started they run into a little bit of difficulty.
So, we were looking at kind of some ... So location is one of them I think some people think that serviced works-
Paul: -Anywhere, yeah yeah.
And, it is I think experience is the key word there because you know if you know a friend who is in central London and is making a fortune out of air B&B. They're based in for example - Risley - it's not quite the same you know.
And the experience in doing it is massive.
Because, if you don't have the location, you don't have the tenants. You fall out of a routine of doing it and you could end up with just an empty flat.
Rob: Yeah, it kind of negates the whole point of why you would do it in the first place.
If you want something where it's simple, it's very easy and simple... That's why buy-to-let sometimes appeals to some landlords who say, "I just want one property, just let that run, give it to a local letting agent, let it go".
Because you've got those benefits with serviced accommodation.
Its just you need to have the right things in place that we spoke about in some of the earlier videos.
But I think the location is a common pitfall because some people either try and tweak their existing properties to make them match and then they run into difficulty with finding the right tenants and things like that.
Or they buy in the wrong area, with the idea of doing serviced and then it doesn't work.
And very often where we see that happening, is with a landlord that wants to maybe do it themselves, but also if they just want to say "Well I've got a letting agent, and they know how to manage my existing professional tenants, so I'll just give it to them. I'll buy a flat on the market with Rightmove".
They can go and find any property and just give it to their current local letting agent.
But I think that experience in serviced accommodation and corporate lets is massive, isn't it? Like not every letting agent know how to kind of do it and make it work.
Paul: Absolutely ... and also, it's the area but also if you have gotten an apartment and then you look to turn it into a serviced accommodation.
You have then got some battle issues.
Does your lease allow you to do this? Does the mortgage that you've got on this property allow you to do this?
Because if they don't, then you're going into a world of trouble with it.
If the bank found out that you're subletting - which to me, I guess, is what you are doing - then you know they can pull everything on you.
Rob: Yeah, say you're buying. You've found the right property. You're buying the right area and you think of this, kind of, working.
But if you've not considered the leasing aspect of the building that you're in or you've not considered if you're buying it with a finance product - how those kinds of aspects come into play as well so...
Paul: And then, yeah ... And on top of that, you've got the location.
And voids were a big thing as well because, if someone's doing it themselves they are more than likely - they've got to go down the route of Airbnb or booking.com.
They've got to go on the short terms because they really don't have access... One person has got to have access to a relocation expert. It's not gonna happen.
And, then in the world of social media now if you're not very good at managing your serviced models, you know where your meets and greets - your 24/7.
Rob: It's sorta review based-
Paul: Its review based. And that's gonna have an effect as well.
So that's why we're dedicated to what we do because we've done it well and we know what we're looking for.
And, if it was that easy, then we won't have a model to give out because then we won't be doing it-
Rob: Yeah, a lot of competition-
Paul: Yeah, you know, so there are so many factors you know which we try and incorporate, it's even on the finance side.
We'll deal with independent mortgage brokers that we can give you advice because it's not just as simple as going to your local bank on the high street and saying, "Right, this is what I'm looking to do, can I have a mortgage?".
Rob: Yeah there's loads of more challenging banks there are loads more options out there when it comes to kinda financing-
Paul: Which a lot of people don't know about, but you know, they are there and they're just as if not more competitive than what people are used to.
Rob: Yeah, it's just bad having those contacts that can open those doors for you.
And, I think that's where like the common pitfalls for service accommodation can kind of unfortunately impact some peoples portfolios when they try and get started in service that did not consider them.
So, things like finance and stuff, there are financing options for them but if financing changes all the time so its the case of speaking to your brokers, having access to the right brokers, like contacts to see what financing options you can do, and making sure that the lease on the property, the licence, the freeholder management company and stuff is structured and allows you to do service accommodation, and then also even just having access to the right tenants and things like that.
So, there are some common problems you might face with the serviced model but they're certainly overcomeable and if you have the right team in place if you look for something that's got the kind of the right structure and comes at it from the right angle.
So that's where, I guess, the letting agent aspects... the background that you guys have just beaten a developer trying to do this because they don't have those contacts, don't have that kind of experience and stuff.
Paul: You know, and you will get the odd person saying, cause obviously we have a fee for what we do - "why should we charge you when we can do it ourselves?"
And sometimes you just want to say "try", because at the end of the day is it gonna be worth it for 1% more for the amount of hassle that's going to be involved and what you will have to do for it.
What we charge is quite low considering the amount of work there is on the background because the individual, the client, will never see that work, because all they want to do is, quite rightly, sat at home, their investment is normally going in appreciation, juicing a good return, and not having any hassle with them what so ever or any dealings with them-
Rob: Yeah, and I think its a mindset thing cause when I first started my portfolio, we were very hands on with the rentals aspects of it, partly because we wanted to save some money, we wanted to do it ourselves, we wanted to try and learn the market but as you progress, as you start to understand the different models it makes so much sense even for kind of business point of view tactical point of view to use other professionals, people with experience within that industry rather than trying to be just kind of hands on doing everything in your business.
So yeah there are some common pitfalls but they're easy to overcome. If you look at what the benefits are with serviced and you can see if you use the right kind of teams and things you can set up very nicely and so it can be a great addition to your current portfolio.