When you think of investing in property, images of a traditional two-up-two-down terrace house may spring to mind.
These are pretty standard in the buy-to-let world, but what many investors are coming to realise is that there are a host of new, emerging opportunities.
Chief among these is the growing demand for serviced apartments. Younger generations are driving change in the world of short to medium-term accommodation.
The days of hotels with little more than twin beds and a kettle are dwindling. Now people want the professional service of a hotel and the home comforts of, well… a home.
It’s no wonder then that the popularity of serviced apartments, which provide the best of both worlds, has risen drastically in recent years.
So, we know that serviced apartments are great for users, but are they a good deal for investors? Well, if you’re pressed for time and want the short answer:
If, on the other hand, you want to know why serviced apartments are a good investment, we’ve laid out the top reasons below.
Higher Rental Yields
Money talks in this world, which is why we’ve started by looking at the potential rental yields you could achieve with a serviced apartment.
According to research from JLL, long-term residential yields typically come out at 3-4%, compared to serviced apartments that regularly hit 6.5-9%.
This is because serviced apartments typically target a different type of tenant. Serviced apartments attract tourists or business people, who are happy to pay more to enjoy a spell of luxury.
For example, an apartment that may be worth £1000/pm could be used as a service apartment at £100 per night. Of course, the usual short stay nature of serviced apartments means you need a higher volume of tenants, but you could make more money in four weekends than you would over a month of traditional renting.
One of the difficulties landlords face with traditional buy-to-let investments is maintaining their property. After all, you may only get to see inside your property every six months.
So, if you have a problematic tenant or one that doesn’t notice an issue, by the time you’ve found out about it, it may have already turned into a financial black hole.
Serviced apartments solve this problem. After all, the clue is in the title – serviced.
This style of investment means that you’ll regularly get access to your property in order to make sure it is clean and ready for the next guest. Even if you have a longer stay tenant, you’ll still be able to keep an eye on your apartment while dusting.
That means you can deal with any potential issues quickly and before they turn into a major issue.
When it comes to the people making use of your investment, you’ll also find that serviced apartments typically attract a premium type of tenant.
The short-stay nature of serviced apartments often means your guests treat the property better than their own because they know that people will be using it after them.
Of course, as with any property investment, there are no guarantees that you won’t get a bad egg. Someone could come in and have a party that trashes the place on the first night, but at least they won’t be doing it for an extended period of time.
Buying in a Good Location
One of the interesting advantages of serviced apartments is the role they play in simplifying the choice of where to invest.
Buy-to-let investments can be found across the country, and there are countless pros and cons to each. That’s great in terms of opportunity, but for many investors, so many different factors can be hard to weigh up.
Serviced apartments are really only successful in areas where there is a strong tourist or business trade. That makes it simple to identify locations where they are likely to be successful and invest accordingly.
Of course, this has the side-effect of meaning you’ll likely have to buy in a city centre, which has a higher cost implication, but the improved rental yields more than makeup for that, and you have the potential of higher returns when you come to sell.
Simpler to Sell
It seems strange to talk about the ease of selling a property as a reason to buy it, but when it comes to investing, you have to plan for an exit if your circumstances change.
When it comes to selling traditional buy-to-let properties, the first decision you have to make is whether to invest any more money to increase its market value.
If you’ve had long-term tenants or ones that haven’t looked after the property properly, you may find you have to invest in a full refurbishment just to sell.
As we’ve already discussed, serviced apartments allow you regular access, making them far easier to maintain. That means they’re still in great shape when you come to sell and you can get maximum value from your investment.
Is a Serviced Apartment Right for You?
Serviced apartments come with a host of benefits for investors, but that doesn’t mean they’re right for everyone. Unlike traditional buy-to-let properties, serviced apartments are more time and labour intensive when it comes to managing them.
Therefore, you need to think carefully about whether you’ll be able to manage a serviced apartment on your own, or whether you’ll need to hire in some help.
It’s also worth noting that investing in a serviced apartment is not as simple as just buying any property. Apartments are typically leaseholds and can come with restrictions stopping you from using it as a serviced apartment.
Finding a leasehold property on the market without these restrictions can be time-consuming, so one strategy is to find property developers currently developing property that can be used as serviced apartments.
Ready to hear more?
Get in touch with us at Knight Wood Assets to speak to one of our friendly consultants about our serviced accommodation opportunities and how they could improve your property portfolio and income.