This article was updated on Jun 27, 2022.
Should you invest in Serviced Accommodation in 2022? That will be the topic of today’s article.
Nothing written here should be considered formal tax, financial, legal or any other kind of advice.
If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (firstname.lastname@example.org) or WhatsApp (+44-7393-450-837).
Table of Contents
Instead of opting for traditional real estate investment opportunities such as flipping, REITs, etc., people can opt for another excellent approach towards real estate investments, i.e., making an investment in serviced accommodation.
Well, what exactly do you mean by serviced accommodation? Serviced accommodation is similar to a property such as a hotel room, fully furnished apartment, workspace, and other similar types of properties.
In layman’s terms, serviced accommodation is a type of accommodation property that allows individuals to stay for a couple of days or longer periods (such as a couple of months or even years) with some extra facilities compared to general accommodation properties.
In many situations, the terms “Serviced Accommodation” and “Serviced Apartment” are interchangeably used, especially when the property is located in an apartment building. No need to get confused.
The main objective of a serviced accommodation (or serviced apartment) is to create access to all the features and utilities offered by top-notch hotel rooms while having some extra space and comfortability that comes with regular apartments.
That’s okay… But what about non-serviced accommodation? A non-serviced accommodation or non-serviced apartment does not offer additional services as serviced apartments.
In most cases, a non-serviced accommodation is also called a buy-to-let property.
Some good examples of non-serviced accommodation include properties such as hostel rooms, rented apartments, campsites, holiday parks, etc.
Even non-serviced apartments come with the furnished status and best-in-class services, yet the property is privately owned and offered to customers for rental purposes.
Some people who invest in serviced accommodation keep it strictly as an investment asset and only intend on deriving rental income from it.
Within this model, the property can be made available for a few days to months depending on the type of accommodation or the choices of the operator. This model of investment can be referred to as a “Long-term lease”.
On the other hand, some people treat such properties as vacation homes where they stay while having a vacation in that specific location.
Even such people opt for rental income from those properties when they aren’t using them for personal purposes. Resorts can be a good example to describe such a model, and this model can be referred to as a “Short-term lease”.
In both investment models, the operator takes care of the activities related to finding customers for the property.
Serviced accommodation properties come with a wide range of benefits compared to general types of real estate investment opportunities.
We have said about features and utilities being offered with serviced apartments, but what exactly are these additional facilities?
Some of the mainstream facilities provided with serviced accommodation are cleaning service, furnished rooms, kitchen area, lounge area, workspace, gym, swimming pool, etc.
While making an agreement with the operator, the terms and conditions may differ depending on the investment model, type of property, and other influential factors.
As we all know, most people tend to search for accommodation, i.e., long-term stay, especially when they know how many days they are going to live in that particular region/place.
Another reason may be because the individual is not familiar with the knowledge of serviced accommodation, and in such circumstances, individuals often go ahead with regular apartments or similar non-serviced accommodation.
Tenants also get an unlimited range of options when they are looking for accommodation with this option.
However, unlike serviced accommodation, traditional apartments or similar properties won’t have some additional advantages such as onsite staff, access to cleaning services, and some other features.
Along with that, the tenant is required to follow all the terms and conditions that may not be as flexible as serviced accommodation.
For example, the tenant would have to provide a notice when they intend to vacate the property or they might have to inform the owner then they have additional guests staying over.
Finally, an individual is required to put in a lot of effort and time when they are searching for the right type of property (medicine non-serviced accommodation).
Let us discuss a few advantages that come with serviced apartments or other types of serviced properties.
To begin with, let us start by talking about the major advantage of serviced accommodation, which is a guaranteed rental income. The operator/handler of the entire property (where the serviced apartment or property is located) takes care of finding people to provide the property for rent.
This allows the investor to sit back and relax while having the privilege of obtaining a guaranteed rental income at a certain fixed rate.
Compared to various other residential properties, serviced apartments generate higher returns, that too, at a fixed price.
Another great advantage of investing in serviced apartments is that the owner doesn’t have to take care of aspects such as maintenance or repairs.
Such types of activities are managed by the operator who takes care of the entire property. This means absolutely zero complaints from tenants and no necessity to take care of repairs or renovations by themselves.
Finally, imagine having to stay in another country for a few days or a couple of weeks. If you go ahead with non-serviced accommodation such as Airbnb, you will end up paying a lot of money.
Moreover, you will lack various facilities, which can be acquired by staying in a serviced apartment. As the primary goal of a serviced apartment is to provide as many facilities as possible, it can become the best choice for the people who are looking for short-term accommodation as well as long-term accommodation.
Investing in serviced accommodation offers access only to the particular part of the property and the entire property still belongs to the owner if there are more than one accommodation property managed together (such as hotel resorts), and at the same time, all the administrative activities are managed by the operator. (sometimes the owner of the entire property and the operator are the same).
This might not offer a sense of complete ownership of the property, which may not be convenient for the people looking for complete ownership over the underlying asset.
Apart from that, the capital gains may or may not be high, which means that it becomes a potential drawback for the people who focus on capital gains.
In simple terms, even when some investors concentrate on regular cash flow from their properties, they still intend to invest in properties that will increase in value (keeping the future in mind).
To let you have a better understanding, imagine that you purchased stocks of a company that offers good dividends. Even when you get a good dividend income, you should aim for an increase in the value of the stocks you own in the future. If that’s not the case, you will end up selling those stocks for a price lower than you purchased them for, ultimately resulting in losses.
Similarly, the investors who are looking for some good capital growth over the investments they’ve made might find it hard in doing so.
Especially considering the investment market, the next buyer who would purchase the property from you would likely be another investor, which reduces the demand.
Adding to that, it may become difficult to find a potential buyer when you want to get off the “Investing in Serviced Accommodation” ship once you are aboard.
The secondary market is not very encouraging for these investments because very few investors are savvy to the complete knowledge about serviced apartments.
Most of the resale market comprises owners who use the property for themselves, and unless you have good connections or access to a secondary market, selling isn’t as lucrative as one might think.
Therefore, you will end up putting in a lot of time and effort when you are trying to sell the serviced apartment owned by you.
Usually, banks or other financial entities offer a loan depending on various features of a residential property, and obtaining financing for serviced apartments might become a tad bit hard due to the lack of lucrative features.
Because of this reason, you will end up paying hefty amounts as a deposit while acquiring a loan. To make it more complex, some lenders are strict on lending rules, where they won’t be keen on covering the furniture or other items.
Last but not the least, you should also consider the fact that these properties seem attractive only when they are performing well.
By performance, we mean regular and consistent income, and this solely depends on the management of that property.
When the operator doesn’t put in a lot of effort in making the property lucrative or if the operator goes out of business, then the investors would have to kiss their regular and consistent income goodbye.
There is a possibility of some unexpected discomforts, and one such issue can be the occupancy rate. The average occupancy rate can be around 80% in most places, and in such situations, people might find it hard to book a serviced property in advance.
One major drawback with serviced accommodation is the probability of the absence of the features that we have mentioned earlier.
For instance, some properties may not include onsite staff, and at the same time, some properties may not include facilities such as a swimming pool, gym, parking, and so on.
The absence of such facilities is associated with residential-style serviced properties in most cases.
Last but not least, some properties may have restrictive terms for cancellation or the stay, which is a huge discomfort for the tenants who are looking for a flexible type of accommodation.
Mostly, properties impose such restrictions with respect to the Covid policy; for example, some properties may not allow additional guests to stay over.
There are a few things that you should take into consideration, before making an investment in serviced accommodation. When it comes to serviced apartments, guests will just be looking for a home that is not their actual home.
This means they want to have access to a wide range of facilities which would make them feel at home. Therefore, the following aspects should be included in the property.
• Instead of a single space being used as a bedroom as well as a living area, it is better to have a separate bedroom or two if possible. This will create a sense of accessibility to a large space while safeguarding the privacy of the guest(s).
• A nice kitchen area that consists of all the necessary items like plates, pans, vessels, and cutlery. There is no need to have a lot of items, but instead, you have to make sure to include the important ones.
• All the kitchen and bathroom appliances like stove, dishwasher, washer, water heater, water purifier, and other necessary appliances.
• No matter what you include, the tenant would need access to a few facilities, i.e., TV, Wi-Fi, Refrigerator, Air Conditioner (optional in cold climate locations), etc.
• Instead of charging additionally for electricity and water, it is better to include them in monthly costs.
• Some people need cleaning services and laundry services, and it is better to have such services at hand.
A property with all the above-mentioned aspects is considered an ideal property when it comes to serviced apartments.
Such types of properties will not only seem agreeable to tenants, but they shall provide a regular income to investors making it an exemplary property.
After talking about what is needed to be noted, now let us discuss some influential factors that impact a serviced apartment’s performance and returns.
Location – The location of the property is extremely important so as to achieve good returns and have tenants throughout the year.
For example, a serviced apartment located in a good tourist destination would be profitable and have tenants throughout the year compared to one that is located in a normal location.
Additionally, it is also crucial to have nearby access to important amenities such as hospitals, office areas, tourism spots, etc.
People who stay in serviced apartments are generally corporate professionals, and such people pay a lot of attention the connectivity.
It is better to have a property that has access to transportation alternatives, less distance to the city centre, location in a central region, and so on.
Top-notch facilities – An apartment with full-furnished facilities is advantageous to the tenants. Especially when they are accessing cleaning services, people with outdated facilities will often end up with a lot of issues compared to tenants with access to up-to-date facilities.
Consider this as a one-time investment and always opt for something of high-quality and durability rather than just looking to save money.
Demand – Even when many countries are opening barriers after successfully dealing with the Covid-19 crisis, some countries are still dealing with uncertainty about allowing foreigners.
Buying a property in a country that has flexible tourism rules is important while searching for serviced apartments as an investor. Such countries would allow corporate professionals, who happen to be the primary market for serviced apartments.
Returns – One of the major aspects related to investing is the ROI (Return On Investment). The case with many mainstream property investments is that the ROI is comparatively low.
But that’s not the case with serviced apartments because they offer a higher yield in contrast to traditional property investments.
It has been stated from some reliable sources that the average yield from serviced apartments is usually around 6.5% to 9%, which is a good yield for any investment.
We have to agree with the fact that the costs related to maintaining the property are higher. Nevertheless, these costs can be offset by the following:
• Seasonal offer prices
• Short-term accommodation
• Long-term accommodation
• Adjusting prices
This means the income obtained from serviced apartments is generally higher compared to other rental properties.
Serviced apartments are more similar to luxury accommodation rather than a long-term residential property, and because of that reason, the prices and business models are relatively profitable.
For example, let us say that you have a serviced apartment located in London. In general, the costs for a serviced apartment per night can be around £150.
If an individual stays for a period of 28 nights in that property, along with weekly housekeeping, can cost around £4,200. After balancing the costs coming with bills, housekeeping, etc., the owner would have a rental yield that is higher than the yield coming from a residential let.
The “void” time, i.e., the time for which the property is kept empty is also lesser for serviced apartments. That’s not the case with residential properties because the void time can be higher if the property is only let on a long-term basis.
For this to happen, it is important to make sure the serviced apartment comes with flexibility where it is offered for rent on both short-term and long-term. This aspect of serviced apartments can also be influenced by the location of the property.
As we have discussed earlier, it is better to have a property located near business districts, transportation links, conference centres, etc.
When it comes to hotels or resorts, the regions located near tourism spots attract a higher income. This is the main reason for you to factor in the location while investing in serviced apartments.
Just like the benefits, there are also some noteworthy drawbacks, and we have discussed them already.
In brief, finding a mortgage/loan, searching for secondary markets for resale, and finding an efficient operator are the main hassles that are associated with investing in serviced apartments.
Especially with the increase in global travel, top-quality accommodations located in some of the best tourist destinations are seeing a lot of profitability.
Let us have an in-depth analysis of serviced apartments concerning their advantageousness as a property investment.
According to some statistics, it has been reported that around 91% of the serviced apartments (all over the world) are getting booked for an average period of at least 14 nights.
This would create anticipation of opportunity towards the generation of stable and consistent income for investors getting involved with serviced apartments.
What makes it even better is that serviced apartments are gaining a lot of popularity compared to other modes of traditional accommodation (specifically short-time stays).
As for what we think, serviced accommodation can be a good option for investors who are looking for a passive mode of income without having to handle their investment assets regularly.
Because individuals are tentatively looking for accommodation on a short-time basis while having all the exclusive features offered by a hotel or resort, serviced apartments are considered the next best thing.
Nevertheless, an investment is something that comes with the possibility of profits as well as losses, and without due research and handling, investments are highly likely to experience losses.
All the information has been gathered from reliable sources, and there is a good chance for the terms & conditions or some of the information. This information might also differ based on the property’s location and the property type. Therefore, any individual who intends to make an investment in serviced properties should conduct some research on their own in order to avoid any type of issues.
This is to provide a general insight (educational purposes) on serviced accommodation, and it should not be considered actual investment advice.
We offer top-notch Investment services as well as Financial Advisory services that are specialized for expats, high net-worth individuals, and common people. To acquire the best-in-class investment services offered by us, you can click on the link given below.
You can get access to our services using your android smartphone by clicking on the link below.
If you are seeking a source where you can find all the knowledge regarding financial literacy and investments to become a pro-level investor, then you can click on the link below.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 417.7 million answers views on Quora.com and a widely sold book on Amazon