It May Be More Lucrative Than Traditional Renting
Getting into the Serviced Apartments business has never been easier. The previously saturated market, all thanks to covid has now opened itself back up to investors at the 2012 rates as Covid saw many Serviced apartments flee to the safety of a long term rental to ride out the pandemic.
So, now is the time to do it, the ones that get in now, taking the plunge are the ones that are set to make the most money. So if you were to choose between Rent to service apartments and a management model, otherwise known as a profit share, would you know the difference?
Rent To Service Apartment: Property is rented out from the property owner, knowing it is going to be used as serviced accommodation by the person renting it. The property gets rent
Management Model – The property owner gets all of the profit, minus a management fee percentage.
Serious money left on the table. The risk is high in this situation.
So what is all the fuss about and why would you go into Serviced apartments? A solidly booked Serviced apartment under the management model will be more profitable than rent to SA. This is because you can charge more on a nightly basis – for example, no long term tenant is going to pay £150 per night realistically.
In Belfast for example, the apartments rent for about on average £700 per month in certain areas, and you might be happy with that. There is just the fact that there is a lot of money left on the table in rent to SA agreement and a lot of risks as well. With the management model, this figure could be in and around £3000 per month.
Of course, there is the management fee of around 20%, but with all of the responsibility and worry taken from your shoulders, under a great brand, this option will see you with £2000 a month in income leftover – and even better – your mortgage can now be taxed as an expense – as your home is being managed on your behalf as a furnished holiday let.
This is a massive saving over the year, and even better for the management (SA operator) as all of the money that comes in is deemed as the client’s money. Unless they are VAT registered there is no VAT payable on that so there is no money taken – or wasted- to the government.
You’ll Get a Diversified Portfolio of Tenants
Putting all your eggs in one basket can be said of having a ‘single tenant’ using the Rent to SA model. If the tenant is financially reliable and stays for a long time this can work out well if you are happy to miss out on the pool of money available to you.
If you compare Rent to SA to the management model using the figures above, of £700 and £2000(after fees), the difference in income per year is £15,600 – I don’t know about you, but that is a massive difference in potential income, something that I would not like to part with. Think about each person that stays in your property as a different income stream, making up a percentage of your total income. There are risks in going for the management model but I think in this way – that if you only have to really get 6 nights to cover what you would have got in standard (guaranteed) rent.
Expenses May Be Higher
A serviced apartment is different in that regard, it is a bit more work (unless we take care of everything for you)
If your apartment is well finished with things such as:
High-quality furniture, decor, appliances, and amenities: If you want to impress potential guests, you may need to invest some cash to make sure the place looks and feels classy. Guests want to feel that they are staying in a high-end unit.
Gas/Electric: Your guests are entering a home away from home, which means that they are not taking care of the bills on their short stay. The owner is responsible for paying all of the utility bills that the home incurs.
Success May Be Gradual
Going into a Serviced Apartment rental on your own might see staggered and slow results, but going with a management company like us and the services we provide, your property is added to a strong, established and most importantly, a trusted brand and the bookings are not a problem at securing.
In fact, there is actually a shortage of properties and just not enough to keep up with the demand already, never mind the surge that will occur once travelling restrictions are officially lifted. That is why now is a better time than ever to get started in serviced accommodation.
The Bottom Line
The management model of serviced apartments can be very lucrative, with none of the work, the added benefit of the savings on your mortgage as well as the extra £15,000 + a year cash injection.
If you have any questions you can feel free to get in contact and we would be happy to talk you through any of the worries that you have – but the time is now.