What is Serviced Accommodation?

Serviced Accommodation (SA) is where a landlord lets out a residential property on a short-term basis with a range of amenities included. These include furniture and appliances alongside cleaning, housekeeping, high-speed broadband, TV/movie/sports streaming and 24-hour concierge services.

Facilitated by a number of well-recognised portals such as Airbnb, acquiring/managing serviced apartments can broadly be described as a hybrid of investing in buy-to-let properties and hotels.

What is Serviced Accommodation?

Why Do Property Investors and Landlords Like Serviced Accommodation?

There are a number of reasons why SA has caught the imagination of those involved in property investment…

Income and Revenue Generation

Income and Revenue Generation

Acquiring and managing serviced apartments can demonstrably generate healthier income streams without many of the ongoing constraints that currently face the buy-to-let sector.

Provided the units are of a decent quality, returns often significantly surpass what’s possible through single-let properties and Houses of Multiple Occupation (HMOs).

Particularly in areas like London, Birmingham and Manchester – where net rental yields can be low across the board – adopting a serviced apartment investment strategy can therefore make a lot of sense in the right circumstances.

There is also sustained demand for “corporate lets” in these larger cities. Here, landlords generate strong (and secure) rental premiums by letting SA units to employees on secondment or contractors. Some also let properties for weeks at a time – thereby reducing the level of churn. Returns can also be amplified when catering to larger groups.

It’s also common to see homeowners sectioning off larger properties as well as adding ensuite rooms or annexes. Others deliver quirky options such as eco homes, barn conversions, beach huts and character cottages.

Development and Mixed Use Property Expansion

Development and Mixed Use Property Expansion

Successful SA operators are also creating additional sources of property-related revenue through buying buildings, development sites and creating alternative uses.

Some, for example, have purchased properties with the intention of running SA units in conjunction with cafés, bars, restaurants, coffee shops, gyms, yoga studios, saunas, hot desk spaces, meeting rooms and/or nursery / crèche facilities.

These projects often work profitably if the building is close to public transport and has good footfall.

Capital Appreciation

Capital Appreciation

Broadly speaking, serviced accommodation units can be valued in 2 ways:

  • Bricks and mortar – the underlying value of the property on the open market (using RICS Red Book standards). This assumes the unit will be sold with vacant possession
  • Commercial – based on the income generated from the house/ apartment/ building, which often tends to be well above the bricks-and-mortar valuation.

Despite the peaks and troughs, the property value will almost certainly increase over the long term. This may also be fuelled by the potential to expand through planning, development and multi-use strategies as described above.

Easier to Sell Up

Easier to Sell Up

Trying to sell a property with tenants is often tricky – not only because the pool of buyers tends to be narrower combined with the fact that offers are likely to be less.

Should you decide that you no longer want to be a landlord of any kind, disposing will be simpler as you will not potentially have to wait months to vacate the property.

Tax Benefits

Tax Benefits when Undertaking Serviced Accommodation

Whilst they’re likely to build up as you run your serviced accommodation business, many of your overheads will be tax deductible against profits.

You can also claim the following:

  • Capital Gains Tax (CGT) reliefs as a trading business
  • Capital allowances for furniture and other fixtures you purchase

Note that there are specific timeframes to adhere to – namely:

  • The property must be available to let for a minimum of 210 days per year and it must be physically let for at least 105 days of the same year
  • You cannot let a property to the same person for more than 31 consecutive days for more than 155 days of the year

If you use the property as your primary home – the tax treatment will change.

Remember also that income from SA is VATable and any turnover over £85,000 would require you to be registered. It is possible, however, to benefit from a 10.5% rate. Remember to also check out the Tour Operators Margin Scheme which could further reduce your liability.

If you also own property in a personal name, remember to check how Section 24 will impact your income tax liabilities. On this note, we would suggest that you make any acquisitions within a Limited company structure.

Above all, please seek independent qualified accountancy advice before making any current and future decisions. Note that HM Revenue & Customs refers to the industry as “furnished holiday lettings”

Building a Great Business Brand

Building a Great Business Brand

Related to the above, building a successful SA Business is so much more than providing a roof over your tenant’s head. It makes a lot of sense to create unique and memorable experiences with tenants that, in due course, will boost the overall reputation of the units you provide.

Decent SA provides focus on making guests feel like they’re staying at a high-end hotel rather than a resident of a typical apartment or rental property.

Whilst this does require a great deal of investment, the end result is both a strong income-producing asset alongside a valuable overarching business.

Being Part of a Nascent Yet Fast Growing Industry

Being Part of a Nascent Yet Fast Growing Industry

With the UK hotel industry worth approximately £20 billion every year, serviced accommodation continues to take an increasing “slice of the pie”.

A quick browse through Airbnb shows how a range of innovative projects continue to drive the sector forward – a trend that looks set to continue.

Encouragingly, there’s a growing base of evidence that shows that more people prefer to use portals like AirBnb when travelling – often because there’s more space compared to hotel rooms as well as a higher degree of privacy.

Serviced Accommodation Risks and Barriers

While serviced accommodation has become a bit of a buzzword in property investment circles, it’s well worth running through the potential downsides of embarking upon projects of this kind.

It’s Not A Passive Investment Strategy

Serviced Accommodation Is Not A Passive Investment Strategy

At least at the start, SA will not be something you can “set and forget”.

From the upkeep of the units to making sure they are well-equipped with the latest furnishings, tenant expectations will be high. Failure to offer an optimum service will invariably result in poor feedback and, therefore, a business that suffers.

As time goes on, you can build up a reliable “power team” alongside systems and processes to make things run more efficiently. Whilst not cheap, there are also an increasing number of management services that can assist with various operational sides of the business.

If, however, you are looking for a more hands-off property investment strategy – despite having its own set of ongoing challenges – vanilla buy-to-let is arguably the better path to follow.

Mortgage Restrictions

Mortgage Restrictions on Serviced Accommodation Projects

As lenders view serviced apartments as a commercial endeavour, it’s not a simple case of seeking out standard buy-to-let mortgages to fund your projects.

This will mean approaching specific institutions that cater to this sector. Most will have stricter underwriting criteria and lending terms on financing serviced apartments.

Runaway Overheads

Runaway Overheads

Whilst the returns are encouraging, SA running costs will be higher relative to normal buy-to-let and HMOs.

From refurbishing the property to finding guests, advertising check in/out costs and keeping up with the latest interior design trends, your outgoings will mount up.

Indeed, most serviced apartments operate in competitive spaces. This demands being constantly ahead of both the other operators in the area and hotel providers.

Particularly at the start, there will be a fine balancing act to ensure that you can maintain a healthy profit margin.

Seasonality Issues

Seasonality Issues

Although the UK as a visitor destination shows no signs of waning, the unpredictability of British weather can sometimes lead to cancellations and uncertainty over occupancy rates.

With cheap flights to Europe, many tourists prefer to head to destinations with guaranteed good weather.

Nonetheless, most people know what to expect and – from London, Lake District, the Cotswolds and Snowdonia through to London, Bath, York and Edinburgh – there are several parts of the country that attract staycationers at all times of the year.

The UK also remains a prominent destination for global business visitors – a trend that shows no signs of waning.

Problem Tenants

Problem Tenants

Whilst most people will be respectful, you can expect the odd guest who will not treat the property well.

Although you can claim compensation, it can be a pain to deal with the damage – not to mention the void periods that would ensue. There are also so-called “AirBnB squatters” – where people have moved in and even attempted to claim squatters’ rights.

Whilst this issue is one of the risks beyond your control, vetting procedures and catering to certain demographics (think mature couples and lone travellers rather than 20-something groups of friends) are a couple of potential solutions to control this risk.

More Regulation 

More Regulation

Similar to the HMO sector, it’s somewhat inevitable that more regulation will come into play as the sector developers.

These are likely to include healthy + safety adherence, noise control and anti-social behaviour measures.

Lease Restrictions

Lease Restrictions

Most leases forbid letting apartments under serviced accommodation – mainly due to the potential disruption it causes to other residents such as the regular “churn” of unknown guests, anti-social behaviour and noise.

Below is an example of a clause from a lease that refers to a “single private residence only”:

NEITHER the Demised Premises nor any part thereof shall be used for any illegal or immoral purpose. Nor shall any trade or business be carried out. The Lessee shall use the same for the purpose of a single private residence only.

Another term that commonly appears is that the property must only be used as a “private dwelling for one family”.

Should the freeholder and/or the management company discover that a property within the development is being used for SA without permission, the owner will be sent formal warning letters. There could even be legal action if the activity continues. Added to this, in most cases, the freeholder’s insurance policy will not cover serviced apartments.

Note that, theoretically, such restrictions would not occur with houses, annexes and other projects owned under freehold tenure.

Planning Permission Challenges

Planning Permission Challenges

If you’re looking to purpose-build or convert a building for SA purposes, you’ll probably have to obtain planning consent.

The council’s planning department will have its own guidance as to whether there has been a material change in use. The result is that the planners may deem the serviced apartment project as a hotel or guest house (C1) or sui generis (“of its own kind”) rather than a residential property (C3).

The government is also looking to introduce a new short-term let use class – C5 – for planning purposes under the description.

The process is likely to take several months (possibly years) and you may face vehement objections from residents amongst others with vested interests. The chances of success will be higher in areas where such units are already present or where there is proven demand and a boost for the local economy.

How Can I Start Investing in Serviced Accommodation?

Embarking on this investing strategy needs requires a multifaceted skillset ranging from acquisition and refurbishment to interior design, advertising and property/lettings management.

We usually suggest starting small – perhaps buying an apartment where the model would successfully work. You can then grow your portfolio of serviced properties from thereon.

Below, we’ve compiled a checklist worth going through:

  • Is the property location favourable for year-round tourism, frequent visitors, businesspeople or seasonal workers?

  • Is the plan to buy properties in town centres and compete with the likes of Travelodge, Holiday Inn and Premier Inn? Or are you aiming to go for a higher-end target market? If neither of these, is the plan to set up a tourist led operation? Each of these choices require specific strategies.

  • What type are the most popular types of properties for SA purposes in your target area? In city centre locations, it would typically be studio/1 bed/2 bed apartments whereas in more touristy destinations, houses and cottages tend to work better.

  • Will the SA units conflict with other types of housing in the local area?

  • Have you checked seasonal tourist/visitor numbers?

  • Is there an oversupply of SA units in your chosen area (you can check using Air DNA)?

  • Are the occupancy rates steady with low fluctuations? We would generally suggest aiming for 80-85% and higher.

  • How confident are you about the demand and occupancy rates of the type of SA unit you’re proposing for the area (using Air DNA for example)? Remember, even with high occupancy rates, if the average daily rates are low – the project may not be profitable.

  • Related to the last question, do you have a sensible (and workable) pricing strategy for the units in terms of rent?

  • Have you checked out the competition via the SA portals in your target area? How will you ensure that the quality of the property you plan to let out is superb and a cut above the competition (hotels and other short stay lets)?

  • Are there any gaps in the market that you could capitalise on?

  • How much capital do you realistically have behind you? Remember you will have to fully refurbish the property and ensure it’s furnished to an excellent standard.

  • Have you checked the lease? Most will not allow for this kind of activity.

  • Have you checked with planning permission will be necessary? Remember any breaches will be taken seriously.

  • Are you being realistic about your initial and ongoing costs (overheads)? It will take a few months minimum to get out of the red.

  • Have you run the numbers in terms of net rental yield? Calculate by dividing the annual rent minus your realistic costs by the value or proposed purchase price of the property.

  • Do you have a sinking/emergency money to deal with issues that will crop up?

  • What is your break even point?

  • How profitable will the project be at different (including worse case) stress + scenario test scenarios? For example, will the investment remain cash flow positive should you face void periods of 6 months out of the year?

  • Does the property stack up well as a buy-to-let or HMO should the SA strategy not work out as planned?

  • Who will manage the day-to-day operations such as cleaning, maintenance and other practical aspects of managing the unit? Will you outsource or build your own team?

  • Who will deal with bookings?

  • How will you deal with access to the apartments? Will you offer a “meet and greet” service or leave a key box?

  • How will you finance the purchase or remortgage for SA purposes? Will the lender approve?

  • Will you be able to get the right kind of insurance in place?

Finding Serviced Accommodation Units to Buy / Run

To a large degree, seeking out serviced apartments often involves the same processes as other types of properties. However, it often requires more fine-tuning to make sure the unit is suitable for the strategy to work.

Below are some tips on some place you could start your search:

  • Rightmove, Zoopla, On the Market and other portals
  • Estate agents in the area (positioning yourself as a cash buyer – i.e. someone that’s able to move quickly in return for a negotiable price)
  • Subscribe to auction subscription services like Essential Information Group and Property Auctions News
  • Regulated property sourcers and buying companies
  • Direct to vendor, off market and private sellers (using software such as Nimbus and Land Insight, for example)
  • Related to the above, use “Market Minded” on AirDNA to see where SA properties are concentrated
  • Engage in letter writing, leaflet campaigns and localised Facebook/Google Ads campaigns
  • Approach existing SA landlords with units that struggling to let on the likes of Airbnb and Booking.com. It’s fairly simple to undertake a search for the owner on the HM Land Registry
  • Similarly, approach rent to rent providers to discuss properties they are managing and whether there are any opportunities
  • Networking, social media and online forums
  • Property investment companies and developers (who may be willing to negotiate on price for unsold units)
  • Tour operators

Finding Serviced Accommodation Units to Buy / RunFinding Serviced Accommodation Units to Buy / Run


Air DNA for Serviced Accommodation

Using performance data from Airbnb and Vrbo, Air DNA (Market Minder) is a very useful tool to assist with SA investment and management decisions.

Some of the prominent features of this paid-for tool include:

  • Real time insights into average daily rates (ADRs) occupancy levels
  • Pricing suggestion tool – called the Airbnb calculator – for short-term rental revenue projections
  • Understand what types of property would work best in your particular area for SA purposes
  • The investment potential of any address
  • Compare areas and see the best performing (most profitable) properties
  • Understand the competitor landscape and see who the prominent AirBnB hosts in the area
  • Observe monthly and annual booking activity and other seasonal trends
  • Listing optimisation tips.

Serviced Accommodation – Rent to Rent

Rent to rent is where a specialist operator takes out a lease on a property from the landlord and rents it out under a separate rental agreement.

In the SA space, properties are leased from the original owner typically at above the market rent whilst offering payment guarantees. The profit is derived from the gross rent minus the rent paid to the owner minus the operating costs.

Requiring a company/ corporate let agreement, for the owner – working with a rent to rent provider can be a great way to passively let out a suitable property.

Serviced Accommodation Marketing

As you first look to let your SA unit, despite the costly fees, Airbnb and Booking.com are usually good places to start.

Other portals include VRBO, Holiday Cottages, Snaptrip, Rural Retreats, Plum Guide, Sykes Cottages, Trusted Housesitters, Cool Stays, FlipKey, Simply Owners, Unique Hideaways, Homestay, One Fine Stay and Turnkey.

Serviced Accommodation Marketing

You can also set up a simple website with a booking facility. Here, whilst potentially avoiding having to pay the portals commissions, remember you may not have the same protections.

In terms of your brand name, try and think of something memorable that doesn’t exist already.  It’s worth spending some time on search engine optimisation (SEO) so that potential guests can find you easily.

Remember to also set up a Google My Business (this will mean your units will also appear on Google Maps) and ask customers to leave reviews there. In addition to leaving a guest book at the property – Trustpilot, Reviews.co.uk and Feefo are also good places to set up profiles for ongoing feedback. You can then collate and use them as part of your marketing collateral.

You may also want to do some strategic paid advertising via the likes of Google Ads and Facebook. Be careful here, however, as costs can get out of hand.

Arguably, the best and free advertising for your SA units is endorsements from people who have already visited. As time goes on, getting mentions on the likes of Trip Advisor, regional/ national media and other PR exposure has the potential to mean that you will have to invest very little into marketing…

Serviced Accommodation Standards

Depending on local demand, you’ll often find that there different “tiers” of SA provision – offering a range of amenity and service options.

These can be split into 2 broad categories…

Simple “No Frills” SA Standards

These types of units often suit people that may be visiting town or city temporarily and probably won’t spend too much time in the apartment anyway. Other times, people look for somewhere temporary whilst in transit, engaging in short to medium-term contract work or renovating their properties.

These units come self-catered, clean with basic mod cons and furnishings. The charges will obviously be lesser. Think Travelodge or a 3/4 star hotel rather than the Hilton or Marriot.

Key box access for the keys is usually sufficient and – whilst you will normally not need to worry about providing facilities (bar a good wi-fi connection) – being close to restaurants, bars, shops, gyms etc. will often help your occupancy rates high.

Regardless of how long your guests decide to stay, you’ll need to establish a regular cleaning and maintenance rota. Guests will also expect you or your representatives to be flexible.

Luxury SA Standards

These units are akin to 4-5 star hotel where residents receive an optimum level of service.

Serviced accommodation providers in this space focus on delivering a “home from home” environment with units refurbished tastefully with high quality amenities, contemporary furnishings, such as a widescreen TVs with paid-for subscriptions to Netflix (or similar)/films/sport, stylish furniture, luxury bedding, and toiletries amongst others.

It’s also common to include catering provisions such as breakfast alongside fresh coffee/tea, inclusive dry cleaning facilities. Other nice touches, can be fresh flowers or plants – or even a bottle of wine and chocolates. There are also more SA providers branching out into tours, excursions and activities.

From gyms to meeting rooms, bars and eateries, it’s highly likely that everything they are looking for will be accessible within the same apartment complex.

Serviced Accommodation 3 and 5 Star Standards

Serviced Accommodation – Initial & Operating Costs Checklist

  • OTA Transaction Fees
  • Payment Gateway Transaction Fee
  • Channel Manager Transaction Fee (like Guesty)
  • Listing fees
  • Guest screening/vetting
  • Check-in and out processes
  • Photography
  • Council tax (or business rates)
  • Electricity, gas and water bills (remember these may be higher that standard rates, check via Compare the Market)
  • Security costs (live feed CCTV, 24/7 security and noise sensors)
  • Broadband/ high speed wi-fi
  • TV/movie/sports streaming subscription costs
  • Gas and electrical tests and PAT tests (and other compliance requirements)
  • Cleaning per stay
  • Laundry per stay
  • Repair costs
  • Replenishments (toiletries, tea, coffee, etc.)
  • Vouchers for local services (not compulsory)
  • Service charges and ground rents
  • Insurance
  • Mortgage costs
  • Replacement furniture costs

Other Serviced Accommodation Management Tips

As mentioned previously, in most cases, first-time SA operators will need to take a “hands on” approach to management.

Unlike single-let property management, guests will expect to have any issues dealt with immediately. Much, therefore, comes down to being ahead of the game and anticipating potential problems. This is partly because you don’t necessarily need to wait for tenants to contact you so they can report issues.

With time, you can develop systems and processes that make things easier. These will reduce your overheads, leading to greater profits whilst creating savings economies of scale. For example, some SA providers are creating apps for guests to make contact alongside, requests order services, extend their stay or for other general questions.

You may also consider offering scaled payment options based on longer stays. Although this may lead to slightly lower returns, reducing churn and still achieve a decent amount of income. Other SA landlords, offer similar discounts to frequent visitors and other loyalty-based incentives.

Serviced Accommodation Insurance

Broadly comparable to holiday home insurance, SA providers must have a bespoke policy in place. It is not sufficient to take out a standard buy-to-let or residential policy – as the type of letting activity is different.

Insurers are likely to see a higher level of risk and, as a result, charge premiums for both buildings and contents insurance. Certain serviced apartment policies will also cover for pet damage, intentional/ unintentional damage by guests and voids.

Remember if you are employing people directly, you may also need to take out employers’ liability insurance.

Serviced Accommodation London

With approximately 30 million domestic and international visitors every year, London makes a great location to run a SA business.

These units in heavily touristic areas (typically in zones 1 and 2) work well (throughout the year) – but there is also a strong interest in providing accommodation for business visitors, employees and contractors who visit the city for short-term contracts, projects, conferences, training, meetings amongst a range of other reasons.

Serviced Accommodation London

90-Day Rule

Since December 2016, London landlords are only allowed to rent out serviced accommodation units for a maximum of 90 days. Airbnb deletes listings in the capital that are on the platform for over 90 days.

The Mayor of London implemented this as a result of concerns about properties being only let temporarily and not to long-term tenants or those most in need.

It’s believed that landlords profiteer too much and drive up rents too excessively.

This means that . This will involve the local authority sending letters to local property owners who will have the ability to object to any plans.

Financing Serviced Accommodation

From a lending perspective, serviced accommodation providers need to seek out specialist commercial providers that cater to the sector.

Note that if you own a property with an underlying buy-to-let mortgage and want to swap its use to SA, be sure to seek out the correct kind of consent. Realistically, you’re most likely to be refused.

Furthermore, going ahead without this permission with your existing lender is essentially a breach of your mortgage terms and conditions. The lender could “call in” the loan and, if so inclined, potentially prosecute.

At the time of writing, the following lenders operate in the SA sector:

  • Watford Commercial Finance
  • UK Commercial Finance
  • Cumberland Building Society
  • Howard Mortgages
  • Sardison Capital
  • Active Mortgages
  • Holiday Let Mortgage UK
  • Holiday Cottage Mortgages
  • Leeds Building Society
  • Furness Building Society
  • Monmouthshire Building Society

Project funding may also be available should you find a property to convert into serviced accommodation.

Most lenders will want to see a proven track record. They will also closely look at the surrounding circumstances and request approved accounts (profit and loss, cash flow statements, balance sheet), trading history and a track record of operating in the space.

This means that if it’s your first time, stricter underwriting requirements would apply – namely in the form of lower loan-to-value requirements and/or higher interest pay rates.

There may also be stipulations that the property can only be let for certain periods in addition to other loan covenants

The Future of Serviced Accommodation

Whilst certainly a complicated sector to get involved with, getting the formula right with serviced accommodation can result in excellent returns alongside long term capital growth prospects.

It comes as no surprise that more property investors are adopting this strategy as part of their portfolio building plans.

As the sector evolves, given the evident level of demand, competition is likely to rise. With more developers building purpose-built apartment blocks specifically for SA, the focus will be on the provision of the highest quality furnished units.

Doing your research, investing wisely and staying ahead of the game will be key to success in this fast changing operational environment.