Serviced accommodation/holiday lets – what does all this mean?

11th June 2023 · Residential Property

The property investment game has changed a lot in recent years. Historically, the main strategy for an investor, was to purchase a property, refurbish it (if it was required) and then let it out to a family or individual.

Now there are many strategies that investors have to diversify their portfolios, and these include HMO’s (Houses of Multiple Occupancy), Serviced Accommodation (SA’s), Buy Rent Refurbish Resell (BRRR) etc etc. the list goes on…

Over the past 2-3 years serviced accommodation has become very popular, with more and more property experts/investors moving into this segment of the property world. Essentially, serviced accommodation is where you have a property, but rather than letting it out under an Assured Shorthold Tenancy (AST) to a family, you let the property on short term basis, to people that need a place to stay short term, for example holiday lets, Airbnb and professional short term lets for areas with significant growth (i.e. tradesman from out of the area working on a large development who need accommodation) or even medical professionals.

This is popular in city destinations and more rural areas where people visit for one off occasion or go on holiday. The rental income is significantly different between the two strategies (AST or SA). When you rent to a family for say 6-12 months you may get say £500 per month as the rental income (this is an example and will depend on the property size and location as to what the rental income will be), compared that to SA, where you may receive in excess of £500 per week for the same property, being let as serviced accommodation.

You can obviously see from the above example, by this strategy is becoming increasingly more popular. I would however state that running a property as an SA is a lot more complex and time consuming from a management perspective as you need a good maintenance team behind you to keep up with a SA property. As you can imagine, it will need to be restocked and cleaned after every let, which is costly and time consuming, but for most, the financial reward far outweighs any additional work that may be required.

Due to the fact that SA’s have become more prevalent over the past few years, the market for SA’s is becoming what we would describe as “over saturated”. This means that there are more SA properties in one particular area than there is demand. The financial rewards as a result are no longer what they were because more and more investors are looking to get a slice of the cake!

There is also an argument from investors who do not see SA’s as a long term investment strategy, that people using properties as serviced accommodation is removing good quality housing stock from the “normal” rental market which is therefore having a knock on effect for families looking for a long term place to live and cannot afford to move onto the property ladder themselves. This unfortunately is becoming an issue, and as a result, the Government are looking to step in and control this sector of the property market. What the Government are looking to do, is put in place a licencing scheme which means that planning permission will be required for anyone looking to covert a property to serviced accommodation. Now, this may seem onerous and another example of the government trying to stop investors making more money from their property stock, however it is not aimed at stopping people from doing it, it is looking at making sure that local communities are not overrun with such properties and that local people and neighbourhoods are not affected as much. It is also trying to ensure that people in the “normal” rental market still have opportunities themselves to find quality properties to rent for their families.

It is a hard balance to strike, but arguably, there does need to be more control over the ability to make your property into service accommodation. We believe the new scheme will be very similar to that this governs HMO’s. if you would like to convert a property into an HMO, then you would need to seek planning permission from the local authority. Whether or not such permission is granted will be decided by the local authority and their decision will be based on whether there are already too many HMO’s in the area, the type of area that you are looking to operate in and many other factors.

For more information on this, please visit this link to the Government’s website which explains more about the proposals and the consultation which is ongoing.

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