I am often asked about Rent to Rent and Serviced Accommodation property. So in this blog, I will explain both strategies and tell you how you can benefit from them. Serviced Accommodation is a very popular strategy because it creates high cash flow. But let me first explain a little bit about Rent to Rent.
What Is Rent To Rent?
Rent to Rent is when you find a property owner, who for whatever reason is disenchanted with their property. Maybe they are tired or retiring landlords, who don't want the hassle anymore. You step in and offer to pay them a guaranteed rental income. Now think about it for a minute. If you were a landlord and someone is giving you a guaranteed rent every single month, it can be very attractive.
This is particularly attractive if you're fed up and don't want to get involved with the property anymore. Let's say you find someone who's got a one bedroom or two bedroom apartment. They were renting this out on a Single-Let basis. They're not making a huge amount of profit from that. If they have a void period, when there is no tenant, they're going to be losing money. So you come along and say you can give the full market rent guaranteed. This gives them a lot of peace of mind.
These properties are easy to find and you can use them in a number of different ways. The idea being that you rent it out in a way that will create more income than you pay the landlord each month. That is your profit. For example, if it was a large enough property, you could make it a HMO (House of Multiple Occupation). That is a great strategy but there are a lot more, smaller properties, such as one and two bedroom apartments than there are larger properties.
It is these smaller properties, which when in the right location can be used as Serviced Accommodation.
“It is these smaller properties, which when in the right location can be used as Serviced Accommodation”
What Is Serviced Accommodation?
Serviced Accommodation is where you rent out a property for a very short term. It is a bit like a hotel room. People who stay there are people who are maybe on a business trip in the local area. They don't particularly want to stay in a hotel for days and days on end.
They'd rather have an apartment where they've got a room and their own bathroom. They would also prefer having a kitchen with a washing machine. This is along with a living room to sit in and chill out. So it is far more appealing than just living in a hotel room. Sometimes you get couples, friends who are maybe going for a city break. They could also be visiting some family friends, or going to a wedding.
Typically, with Serviced Accommodation you'll have a bed in the bedroom. But also in the living room you might have a bed settee. Another couple can sleep there. It is more cost-effective for two couples to share a one-bedroom apartment for a few nights. This is rather than them staying in a hotel. They've got the living facilities, they can space out a bit and make it a bit more like home. So it's a very popular with short stay tenants.
How Do You Find Tenants For Serviced Accommodation?
To find these short term tenants, you can advertise on websites such as AirBnB, and Booking.com. Bear in mind, you're not going to have the rooms full all the time. But because they're short term let, the rent you get is much higher. You should aim for about a 70% occupation rate and that's a fairly good amount. It should be making anywhere from £500 to a couple of thousand pounds, depending what it is, and where it is. That's after all the bills which you would be responsible for.
Please be aware, because it's Serviced Accommodation, the words, 'Serviced' and 'Customer Service' are very important. It's a bit like a hotel room. So the guests will expect the bedding and towels to be changed every couple of days. The property has got to be clean so you need to provide a cleaner.
You don't want to be doing this yourself, it's not a good use of your time. You should employ a couple of people part-time to change the sheets and to do the cleaning. You can get some virtual assistants to do all the admin for you. So you can systemize this business and bear in mind it should be treated like a business. This means you've got to put some business processes in place.
I see a lot of investors making mistakes by running around working all hours of the day. They are literally running these properties on their own, because they don't have systems and processes in place. It is really important not to do that. You don't need to do everything yourself, you can get other people to help you. Virtual assistants might be a really smart idea to help you systemize and run your business.
But having said this the concept of taking a normal property, doing a Rent to Rent and then Serviced Accommodation means you can make a very good cash flow. This is if it is done properly. You can get it up and running very quickly.
“You don’t need to do everything yourself, you can get other people to help you. Virtual assistants might be a really smart idea to help you systemize and run your business.”
Other Considerations With Serviced Accommodation
There are a couple of things you should be aware of with Serviced Accommodation. If the property is in an apartment block, it's probably going to be a Leasehold property. In which case it’s important to check the lease. You need to make sure that it allows Short Term Lets, on a Serviced Accommodation basis. Many leases prohibit it, so you don't want to do anything against the rules, you need to be careful of that. Always check the lease.
You also need to make sure you have correct insurance in case an accident happens. The property contents need to be insured against damage. You need to have professional indemnity and public liability insurance. This is to make sure you are covered if someone has an accident whilst in the property. Also make sure the insurance company knows exactly how the property is being used. Otherwise you wont be properly covered.
There is another slight challenge with Serviced Accommodation. Generally, most mortgages are not set up for the property to be used in that way. You have to check that the lender is happy that it's used for Short Term Lets. Now there are one or two lenders who are starting to have special products for Serviced Accommodation. If you are using someone elses property for Serviced Accommodation by taking it on as a Rent to Rent, it is all about doing things correctly.
We need to be very open with the landlord. They need to know exactly what we're doing. We're not trying to pull the wool over their eyes, we have to be open and honest. We want to give them a guaranteed rent. You then get a property you can rent out in the right kind of way to be able to pay them and make a profit for yourself.
“Another slight challenge with Serviced Accommodation is, generally, most mortgages are not set up for the property to be used in that way.”
Now sometimes when people hear about Rent to Rent, they worry they've got to pay a “guaranteed rent” every single month. But I would say, 'Is that any different from owning the property and having to pay a mortgage?' Your mortgage has to be paid every single month. If you don't, you could get repossessed. So I don't think it's any different really, but the benefit is you haven't had to get a mortgage. You also haven't had to put a 25% deposit in, so it means that far more people can get into property using Rent to Rent. This is why so many of my students use this strategy.
I hope this has been a useful introduction to my thoughts on a Rent to Rent strategy and Serviced Accommodation.
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