Serviced Accommodation has a Great ROI - So Why Isn't Everyone Investing?
If serviced accommodation offers such great returns, then why isn't everyone investing in it? Well, not everyone can. The serviced model will only work in very specific locations and requires time and effort far beyond what is necessary for the more standard buy-to-let model.
If Serviced Accommodation Offers Such Great Returns Then Why Isn't Everyone Doing It?
Rob: It's Rob from Property Investments UK and in today's video, we're going to be looking at serviced accommodation which offers some fantastic returns.
And, if that's the case then why isn't everybody doing it, or why don't you just change your whole portfolio just to do serviced accommodation?
So, we'll look at covering that aspect in today's video.
So, as we've spoken about, obviously, some of the benefits and stuff of serviced accommodation in this series of videos, Paul, it looks like it's the best strategy to consider.
It's what you should do for all your properties, and how much it gives a great return. But I guess there are limitations or to a point where if it's so great why isn't everybody doing it?
Where is it you're seeing serviced has a place, if it were, in terms of the market at the moment?
Paul Well, firstly from an individual point of view, the amount of effort involved with it.
If you have a normal job it would be almost impossible to do because it is a full-time job.
We have a number of people dedicated to this. That's not one person, that's numerous people dedicated to doing this and making sure it runs smoothly.
Arguably all about more properties but it is not easy and plus, obviously, we've got the lease restrictions, you may not be allowed to do it.
Rob: Yeah, so as a one-man-band investor, I guess you can go and buy a straightforward terraced house and self-manage it yourself but you're probably not going to be able to do that with a serviced because you're not going to be there in an evening or a weekend to let somebody in or to meet and greet them, or to try and get a cleaner around to clean the properties.
Paul: No, absolutely.
Rob: So I guess that restriction in terms of management suits more of a hands-off nature investor because then they can work with teams like yourself and see how you work.
Paul: I suppose the nearest thing to a service model for individual investors are houses of multiple occupancies, the HMOs, but again, it's a different type of build generally.
You have a different clientele. You usually have some expenses incurred when it comes to your tenants moving out.
That's the nearest thing. As we know now the regulations on HMOs are getting stricter and stricter and stricter for the individual.
In terms of the development side, I think people are quite happily focused on the rental market, a lot of them. When the people ask about an over-supply for serviced, I think there'll probably be an under-supply if anything, because in Manchester now ... I think I'm correct in saying it's the largest growing rental market in the UK.
Rob: Yeah, it's massive ... Over the last couple of years in population, employment all of those things.
Paul: Yeah, it's incredible.
Rob: You can see it. Probably hard to see on the video but you've got cranes pretty much on every single building around Manchester at the moment. The city development is amazing.
Paul: This has contracted out, these are asked for, these are demanded.
The fact is, I don't think developers ... Knowing how developers work because obviously being within the industry, it's the effort it would involve them to start creating a service model probably wouldn't outweigh the fact they can just rent them out willy-nilly, like a normal tenancy that they can fill it up straight away.
Far easier because they've already got them systems in place. They can partner up with somebody who's already got those systems in place.
They don't have the systems to do it on a service front, they don't have the staff, the employees and they will probably look at their return on the investment and say, "God, you know for an extra 3% is it really worth it for the amount of people we're going to hire to do this?" - and to facilitate what everything needs."
Rob: And it's not even if you do have a cleaner contract, even if you do have the right systems in place to try and make sure it's managed correctly, you've still got to find the tenants. You've still got to have ...
Paul: You've still got to find them, yeah.
Rob: It's not just as easy as stick it on Airbnb or Booking.com ...
Paul: No, absolutely.
Rob: ... and you get a flood of leads coming in. You've got to be more proactive than that, you've got to have the right relationships with the companies, the organisations to have enough properties in the right locations to offer them, I guess, for them to consider working with you.
Paul: It takes a long time to get a rating with the suppliers that we use, and they're comfortable knowing that they're going to supply ...
Because obviously there is an intermedium between us.
A couple of our clients, HSBC and Bank of America, we don't deal directly with HSBC or Bank of America, they go to one particular source and that source has the relationship with us so you can't just go away and ... A, an individual can't approach them but B, a company can't approach them and say, "Right, we've got this."
They'll say, "Right okay, we don't know what you offer, how you offer it." Whereas as these guys, and I'm sure there are a couple of others, these guys have been doing it for nine years and we know that we get good reviews and we're happy putting them there.
Rob: Yeah, if our director flies in on an evening or a Friday night and their tap isn't working they know they've got someone...
Paul: They know they've got someone, yeah.
Rob: ... to call and it's going to get fixed.
Paul: Or they've lost their key or whatever it may be, yeah. That someone will be there to look after them.
Rob: Yeah, so it's not as simple as just having the systems in place, it's finding the tenants and stuff as well.
Rob: Yeah, that makes sense. So when it comes to, obviously, serviced, I guess, why isn't everyone doing it?
Because we know the systems and stuff are in place, but also I think the location is very important. Where we are at the moment in Manchester ... Manchester is a growing city, there's demand there from other types of people to rent.
I think some people look at serviced and like the idea of the high yields and they say, "Oh I can do it in our local village or our local town and stuff but there's not ... It doesn't work like that, does it?
Rob: So it's not as scalable as that, necessarily.
Paul: No. You might be able to make it work with the short-term, so places that have natural beauty etc. that have a very popular trade during the summer.
You could probably get the same for your 12-month normal rent over the summer ...
Rob: ... and the holiday types.
Paul: ... and the holiday lets, yeah.
There's plenty of places around in the Yorkshire Dales or wherever.
I'm sure you could do little bits with that, but not on an ongoing basis. You need to be in a pretty vibrant central place that's either in the city or very close to a major city, so for example, the Luton product is just 23 minutes from London, which is one of the major benefits of it.
Yeah, you've got to have that element to it.
It's not thinking, "Right, okay, I've got this house sat here, let's make some more money." Doesn't quite work like that because there's a lot of effort behind it.
Rob: Yeah, and that's why when it comes to sourcing properties as well, it's not just a case of all the properties that we can offer.
It's all going to be serviced accommodation because it has to be very specific. I guess the location, the amount of demand from those types of tenants, and it varies over a period of time.
Paul: I think one of the key things in it is that we want to make sure that even though we're putting the service model on it and as it stands to offer our clients higher returns than what we did do. What we want to make sure is that at the end of the day, their exit strategy, so they've got a great standalone investment.
It is in a place that will sell for them if they need to sell.
Rob: Yeah, it doesn't just work because it's a service, it works because of the ...
Paul: The actual property ...
Rob: ... property is great and the asset is right.
Paul: ... works. Yeah, absolutely.
Rob: That makes sense. See, I hope that gives you some kind of context. Maybe some of the downsides but what to consider, why serviced accommodation isn't just right for everybody?
Or, why it's not necessarily going to be, just because it's fantastic returns, what it can do in that respect or why you shouldn't consider it.
There are loads of benefits to serviced accommodation but it's just a case of making sure that it fits for you and your portfolio and the property and also what your long-term plans are within that portfolio as well. So hopefully that helps.