• Home
  • >
  • Blogs
  • >
  • Maximising Profits: Strategies for Serviced Accommodation Setup

Maximising Profits: Strategies for Serviced Accommodation Setup

Published by UK Property Accountants
Published Date: April 23, 2024

The number of serviced accommodation property units in Europe has more than doubled in the space of eight years. This is because of the impressive return in the serviced accommodation business.

Are you confused about setting up your serviced accommodation business for maximum earnings? This article will explore different strategies you can use to set up your serviced accommodation to maximise your profits.

Buying Property to Use it as Serviced Accommodation

As the name suggests, you can buy the property to use it as a serviced accommodation. As it involves a considerable cash outflow, you must be careful while making such a decision. Make sure you select a property in a suitable location that is fit to let it out as a serviced accommodation and property with the possibility of appreciation in value.

You will need to apply for a commercial mortgage to finance serviced accommodation. Before applying for a mortgage, it's crucial to thoroughly assess your financial situation, understand the terms and conditions of the loan, and have a clear business plan in place.

As you own the property, you can take advantage of the property's price appreciation and make changes according to your unique needs and requirements.  

Process for Buying a Property in The UK

Here's a simplified step-by-step process for buying a property in the UK:  

  • Determine the purpose of purchasing the house.
  • Find a solicitor and share your details with state agents.
  • Contact a mortgage broker to find the best type of mortgage suited for you.
  • Determine your source of deposit for the mortgage and discuss it with your mortgage broker.
  • Start looking for the property.
  • View the house and make sure it aligns with your needs.
  • Make an offer on the house through state agents.
  • Obtain a memorandum of sale by providing the necessary details.
  • Progress through sales steps with solicitors and mortgage brokers.

Make sure you consider a survey of the house through independent building surveyors before exchanging the contracts.

Rent-to-Rent Serviced Accommodation

Rent-to-rent serviced accommodation is a business model that involves leasing a property from the owner and then providing the property to visitors at a higher rate. Buying the properties with substantial initial capital for the rental business may not be the right choice for everyone, as the payback period for this can be too long.

rent to rent serviced accommodations

So, to tackle this and give us the more beneficial choice for the serviced accommodation business, there comes the Rent-to-Rent Serviced Accommodation (R2RSA) business model.

It's one of the most efficient business models because:

  •  It requires a small amount of capital to start.
  •  It may be profitable within a few months if the property choosing decision favours.
  •  It can bring consistent recurring cash flow.

It works on the strategy of 'control rather than ownership'.

It also has some disadvantages, which include:

  • No Capital Growth – As we don't own the property, the significant growth of the property value will not benefit us, although we are exposed to all risks related to the property.
  • Associated Risk – Although you don't own the property, you have full exposure to the risk, like not finding a new tenant, bills for possible maintenance, etc.

Let's take an example of what precisely the rent-to-rent serviced accommodation business looks like.

For Example, 

Assume that a landlord named Robert has a vacant property and is tired of trying to find tenants. So, he decides to give the property on lease to Albert (rent-to-rent operator) for five years with a contract of agreement to sublet the property. With the signing of the lease agreement, the operator pays the landlord the fixed rent annually. Now, the operator will sublet the property to other visitors for a higher rate to cover his rental expenses.

The profit you can earn isn't fixed; it may be higher or lower. It depends on your skill set to manage the serviced accommodation business. If you can manage better, you earn more; if you can't, you earn less. It's just this simple.

As discussed under the disadvantages of this model, Albert is associated with risks like repairs and maintenance fees, utility bills (as of contract), etc. Also, if the value of the property had a capital growth of £50,000, then Albert wouldn't benefit, but the one who benefits is the landlord.

One common way to implement this strategy is to locate a landlord with a property set up for serviced accommodation who is willing to rent it to you. This means you won't have to spend much money setting it up. Rent-to-rent serviced accommodation can be profitable if you offer additional services, such as cleaning, maintenance, and concierge services, to increase your revenue. 

Acting as a Middleman

Under this model, you manage someone else's property and charge specific fees based on generated revenue. Property managers generally ask for 15%-20% of the commission for revenue they generate in the serviced accommodation business. It is like co-hosting on Airbnb. You are entrusted with finding guests, advertising, and providing cleaning services. One of the many benefits of this model is that you will not be associated with financial risks. It can be profitable if you have the proper skill set to manage the property and are well aware of the serviced accommodation business sector.

For Example, 

Lucy owns a property, and you, as a middleman, manage Lucy's property. You charge a fee based on revenue generated by serviced accommodation. If serviced accommodation generates revenue of £1,500 per month and you charge a commission of 20%, you will have an income of £300.  

Conclusion

Choosing the business model that suits your skillset and financial condition would be best. Serviced accommodation has proven to be profitable for a lot of people. Each business model has its advantages and its own set of challenges. You should be ready to navigate these challenges you could face along the way.

Need expert advice on Serviced Accommodation?

Contact us today for efficient and hassle-free assistance.

UK Property Accountants
Our Complete Guides
Related Posts

Trust UK Property Accountants to Optimise Returns and Minimise Hassles!

Reach Out to Us Today and Let's Shape
Your Success Together!

Success message!
Warning message!
Error message!