It’s really easy to get started in serviced accommodation. But it’s really hard to do it well. So many things can go wrong but the biggest mistake I see people make is trying to do everything themselves. It’s a decision that costs time and money and will keep you stuck and overworked.
It’s a mistake I made myself before I even opened the doors on my first apartment. I thought by doing the renovation myself I would save money. And I did! The mistake is that it took so much longer than it needed to so I lost out on so many profitable bookings. Also getting a professional to do the renovation would’ve meant a much better finish than my dodgy DIY skills!
This same mistake often continues once people get up and running. I’m going to share 3 scenarios that show how trying to save money by doing things yourself is actually costing money and the most important thing, time. And how leveraging a professional can actually make you more money while taking up none of your time.
Starting from scratch and doing everything yourself. This is by far the cheapest option in terms of running costs. You do the cleaning yourself, wash the towels and linen. Do all your own admin and deal with all the guest questions and issues. You will save a lot of money. On average a cleaner would cost about £25 for a 2 bedroom apartment. Hotel quality linen and towels are £15-£20 to hire per changeover. You would save both of these by doing it yourself. You won’t have to pay a management company any of your income to manage the property for you. You get to do everything your own way.
However you need to factor in the cost of your time. Doing everything yourself takes A LOT of time. A clean can take up to 3 hours. Then there’s the time and work involved in washing, drying, ironing and storing the linen/towels. And this is only the housekeeping side of the business. Dealing with guest communications can take a lot of time. Both before check in and during a stay. You’ll need to keep your phone handy at all times in case of emergencies (or issues that guests feel are emergencies). You will need to arrange cover for any holidays you want to take or else you’ll have to close off your calendar which costs you money.
A hidden cost of this scenario is you are on such a steep learning curve of running a serviced apartment. You will make costly mistakes along the way. Accepting bad bookings that cost you money. Your systems will be ad hoc and all over the place. It will take a few years to become proficient in the business.
Let’s talk numbers. You might make £20,000 from bookings in the property. Apart from your laundry costs you don’t really have any recurring costs except your own time. Probably about 20 hours per week if you’re doing everything yourself for 1 property. You’re running a business so it’s crucial you think about the time you’re spending to get the income. Even if you put a value on your time of £10 per hour then it costs you almost £10.5k over the year to do everything yourself. Leaving £9560 profit. The really scary thing is that £10 per hour is just above minimum wage. If you think your time is worth more than £10 per hour then your profit shrinks even further…
Same £20k income but this time you pay a cleaner and decide to hire your linen. This means they do the washing and ironing too. This costs approximately £40 per changeover. 3 bookings per week is £120 or £6240 over the year. Your time invested goes down from 20 hours per week to 10 or £5200 per year at £10 per hour. That’s a total cost of £11440. You’re paying £1000 more over the year but doing literally half the work (And it’s the hardest work too!). Leaving £8560 profit. This is the power of leverage.
You use a professional management company who can actually increase the income of the property to £30k per year thanks to their marketing, contacts and expertise. They take care of absolutely everything meaning you don’t have to spend any time working on the property at all. At Central Belfast Apartments we are at the higher end of the market and charge 20%+vat of the booking income (But we’re worth it). That would be £7200 from the £30k income. Add the changeover costs of £6240 and the total costs come in around £13.5k. Leaving £16,560 profit.
Even if the management company isn’t able to grow the income to £30k and it stays at £20k. 20%+vat commission + the changeover costs comes in at £11040 leaving £8960 profit. That’s still better than the figures in scenario 2 and remember you are doing no work at all in the business.
You may be thinking to yourself that 10 hours per week from Scenario 2 is an amount of time you wouldn’t miss? The issue is you don’t get to decide when those 10 hours are. Bookings come in at random times, changeovers almost always happen on Sundays and you’re guaranteed to have your evenings disturbed frequently. It also means you’ll only have capacity to grow to a few more apartments before running out of hours in the week. By leveraging a management company you can scale the business as big and fast as you want it. While still doing none of the work!
Serviced Accommodation is a great way to earn income from property. But if you want a business and not a job you have to leverage others to do the work for you. Remember that time is the most precious asset any of us have.
*The figures used have been simplified for the purposes of the calculations and there are other costs associated with running SA*