SERVICED ACCOMMODATION - THE LANDLORDS PANACEA?

Interest rates are high, energy costs remain high and the challenges for finding HMO’s that stack financially is causing many a landlord to consider Serviced Accommodation as the solution.

Is the opportunity real?

What is the scale of the opportunity and is it as easy or as difficult as people say?

Let’s first consider the scale of the opportunity by considering Liverpool a very vibrant city with a generous mix of tourists.

Liverpool Serviced Accommodation Headlines

• There are 5,119 active rentals of which 71% are entire homes

• 84% are advertised on AirBNB.

• Only 4% use Vrbo exclusively and 12% use both AirBNB and Vrbo

• The ADR (average daily rate) is £139 across all properties

• The Occupancy is 48% and the total monthly revenue is therefore £1606

• 2.2 beds and 5.6 guests is the average of all bookings and the quarterly revenue growth was +23% last quarter.

So, clearly a huge revenue opportunity with 2 bed properties on average delivering £1600 revenue per month.

The revenue opportunity is actually even better - the best performers generate over £3,000 per month in revenue.

These sort of numbers very simply explain the desire for many landlords to want to “do SA”.

With these revenue opportunities it clearly makes sense to investigate SA further.

Please make no mistake - SA is not a panacea and it is not just another property strategy. It is a strategy to use with suitable properties but it not low maintenance and you are signing up to run a hospitality business if you wish to gain the potential returns people talk about.

An SA property is in some ways a safer and cheaper option than HMO's. It is much easier to unravel than an HMO if it doesn't work - there are no tenants on AST contracts and the cost of conversion to SA is also less than the cost to develop a HMO.

With in excess of 50 years operational experience in hospitality and operating an 11 bed hotel, pub, restaurant for over 10 years we are well aware of the opportunities and challenges afforded being an accommodation provider. We are Trip Advisor World Top 10% performers and have been virtually every year but this market is challenging and we want to encourage people to think deeply, strategically and to do the background work to learn so you do reap the rewards which can be greater than simply financial.

Today operating an accommodation business to yield return guests and great reviews which drives your revenue takes more passion, knowledge, attention and expertise than it ever has and there are more competitors than there have ever been so being better is paramount.

Considerations

Converting your property into a serviced accommodation involves much more than just a property strategy; it essentially transforms your real estate into a hospitality business. To operate successfully in this space, you must understand and become educated about various operational aspects, it is lighter touch but it is similar to running a hotel. The following is by no means exhaustive but merely a few areas to consider:

1. Hospitality Management:

Customer Service: You must excel in customer service, ensuring guests have a comfortable and enjoyable stay. This includes handling inquiries, check-ins, and addressing any issues promptly. Flexibility of check in is important and different target markets seek different things, expect different things and value different things.

Vision: What is the vision for your target audience

Team: Who will comprise your team and how will the guest experience vision be assured - will out outsource the management or keep it in house and what are the pro’s and con’s aside from giving away 20% of revenue.

2. Property Management:

Maintenance: Regular property maintenance is crucial to keep your accommodations in top condition and to address any unexpected issues promptly.

Cleaning Services: Arranging and managing cleaning services between guest stays is essential to maintain cleanliness and hygiene standards. Hint - this is also a great way to stay abreast of and act promptly to maintenance issues before they become guest issues and feedback issues.

Inventory Management: Keep track of and maintain inventory, such as linens, toiletries, and kitchen supplies, to ensure guests have everything they need.

Developing and equipping the property to meet the distinct needs of the target audience for your offer

3. Marketing and Promotion:

Online Presence: Establishing a strong online presence through platforms like Airbnb, Booking.com, or your own website is vital for attracting guests. Understanding the merits and challenges of the different options and deciding upon your route or routes to market

Pricing Strategy: Develop a pricing strategy that considers factors like seasonality, local events, and competitor rates.

Pricing Flex: who and how will you manage the flexing of price across channels and how frequently

Photography and Listings: High-quality photos and compelling property descriptions can significantly impact your property's bookings.

4. Legal and Regulatory Compliance:

Government Legislation: Some are rushing to SA because of the lighter legislation. Understand that this will not last and that running a hospitality business requires a focus and plan for the safety of your guests. This is not a get rich scheme with light touch operational or investment requirements. The fire risk assessment for our hotel runs to 63 pages.

Be aware of and comply with the legal requirements of hotels and B&B’s - even if this is not a current requirement rest assured it will be the direction of travel as guests lives are at stake while in your care.

Taxation: Understand any tax implications that may arise more quickly from operating a serviced accommodation business and ensure you are in compliance with tax laws - One SA property with monthly revenues of £3k will not tip you into VAT territory but the third one will, so plan accordingly.

5. Financial Management:

Budgeting: Create a budget that accounts for expenses such as property maintenance, utilities, cleaning, and marketing.

Revenue Forecasting: Research should be conducted prior to signing off to make your property an SA or placing the offer to buy it. This research takes time and / or money to access valuable support from the likes of Air DNA

Bookkeeping: Keep accurate financial records to track income and expenses, which is crucial for tax purposes. This is obviously more involved than a vanilla BTL and you should budget for system or outside support if required.

6. Risk Management:

Insurance: Consider insurance coverage tailored to short-term rentals to protect against potential damage or liability issues.

Security: Implement security measures to protect both the property and guests' personal information.

7. Guest Screening:

Develop a system for screening guests to ensure the safety and security of your property and neighbourhood.

8. Guest Experience:

Amenities: Provide amenities and extras that enhance the guest experience, such as high-speed internet, smart home technology, or local recommendations.

Cleanliness is paramount so ensure you understand how your property is going to be cleaned and maintained.

Communication: How will you maintain open lines of communication with guests before, during, and after their stay.

9. Reviews and Reputation Management:

Encourage positive reviews from satisfied guests and address negative feedback constructively to improve your property's reputation.

10. Emergency Preparedness:

Develop emergency plans for situations like fires, floods, power outages, plumbing issues, or medical emergencies. Guests will not be as forgiving as buy to let residents and will demand prompt responses and solutions - this is their planned escape and the expectations are high.

Conclusion

These are just a snapshot, operating a serviced accommodation property requires a comprehensive understanding of these and other operational realities. It is essential to educate yourself, potentially seek mentorship or training, and continuously adapt to market trends and guest preferences to succeed in this competitive hospitality business. The revenue numbers are indeed alluring but much more lies behind these.