How To Invest In Serviced Accommodation? A Step-By-Step Approach

Serviced accommodation offers a unique blend of hospitality and real estate and can generate attractive returns if you know what you are doing. A serviced accommodation is also known as corporate housing, serviced apartment, holiday let, vacation rental, corporate stay and/or short-term rental.

Understanding how to invest smartly in serviced accommodation can be a game changer as the start-up costs can be low, while monthly cash flows and ROE (Return On Equity) can be very attractive. Achieving a ROE of 100% (this means that you will have earned your investment back in 1 year) is very achievable.

You only need to know in detail how to approach this strategy, as investing in the wrong property can burn cash very quickly (I know from experience).

Much vague and untransparent information is available on investing in serviced accommodation. This article will give you a detailed roadmap to hit the mark from your first investment in serviced accommodation!

TL;DR:

• Serviced accommodation can be a highly profitable investment, requiring almost no start-up capital.
• Learn the essential steps to invest successfully.
• Gain insights into market research, property acquisition, and legal requirements.
• Tips on property preparation, pricing strategies, and marketing.

What is Serviced Accommodation?

Serviced accommodation sits at the crossroads between a holiday let and a traditional hotel room. It’s a genre of hospitality that offers guests the comfort and privacy of a home sprinkled with hotel or guest house-like services. Serviced accommodation properties are aimed towards holiday guests and business travelers, where everything from towels to coffee is handled.

Reasons You Need To Know About Investing In Serviced Accommodation

Why serviced accommodation? Imagine a rental property that combines the high occupancy rates and nightly rates of a holiday let with the recurring income of a traditional property investment. Serviced accommodation offers this blend, providing a potentially highly lucrative reason to diversify your portfolio.

On top of this, the short-term rental market is expected to grow with an annual growth rate of 10.8% until 2030, so now is the right time to step in!

Step-by-Step Plan to Start With Serviced Accommodation

Becoming successful with a serviced accommodation unit depends entirely on the right due diligence and proper management after acquiring a property. From navigating legalities to curating guest experiences, the following step-by-step plan is your blueprint for success.

1. Conduct Market Research

Stay Above Board: Compliance isn’t optional; it’s essential. Do your homework with regard to local regulations to start with!

Scout Prime Locations: Pinpointing areas and cities that magnetize travelers, ideally leisure and business-related. Think bustling city centers, tranquil seaside retreats, or locales with unique attractions.

Gauge the Demand: Assess the demand for serviced accommodation units. Are business travelers flocking to the city? Is there an annual festival that packs out properties?

Survey the Scene: Get a view of the existing market. Who’s offering what, and at what rates? You can use websites such as Airbnb and Booking for this. This research is essential for positioning your property in the sweet spot of demand.

2. Acquire the Property

Value: Don’t just chase the lowest (rental) price; look for a property that promises value regarding location and potential guest satisfaction.

Strategy: I recommend renting your first few properties to familiarize yourself with the serviced accommodation concept. This strategy does require around $10k initial investment, to refurb and furnish the property. This strategy is called ‘Rent To Serviced Accommodation’.

Financing: There are various forms of financing serviced accommodation. I will discuss these later on.

3. Obtain Necessary Permits and Insurance

Permits: Liaise with the local council that you started a serviced accommodation unit.

Specialist Insurance: Obtain content insurance for serviced accommodation.

4. Prepare and Furnish the Property

Furnish and Decorate: Equip your property with quality furniture and all necessary amenities (Wi-Fi, kitchen essentials, linens, etc.) tailored to your target market.

Safety and Maintenance: Ensure the property meets safety standards (smoke detectors, first aid kits) and is in good repair.

5. Set Your Pricing Strategy

Competitive Pricing: Setting the right price per night for your serviced accommodation can be the difference between a booked calendar and a vacant one. Conduct market research to understand the pricing of comparable hotel rooms and serviced accommodations.

Dynamic Pricing: Consider dynamic pricing strategies that adjust for peak seasons, local events, and last-minute bookings. Above all, price with value in mind, ensuring guests feel they’ve received their money’s worth.

6. Market Your Property

Create a Compelling Description: Marketing your property effectively showcases why business travelers should choose your serviced apartments over the rest, especially those with multiple bedrooms. Highlight the convenience of additional space, privacy, and the comforts of home in your marketing materials.

Professional Photography: Utilize professional, high-quality images and descriptions that showcase your property’s best features.

Listing Platforms: Reach out through various channels – online listings, social media, and networking with local businesses to capture a broad audience.

7. Implement an Efficient Booking and Management System

Booking System: An efficient system for managing bookings and operations is the backbone of a successful serviced accommodation. Invest in technology that streamlines the booking process, making it easy for guests to reserve their stay.

Property Management: Ensure your management system includes responsive communication channels for guest inquiries and support. Regularly review and optimize your system to handle high volumes and maintain high-quality guest experiences.

8. Focus on Guest Experience

Check-in process: Make sure the check-in process is smooth; install a smart lock for easy access and to avoid unnecessary key handovers. Provide guests with a welcome guide that includes instructions for the property, local recommendations, and any other useful information.

Communication: Be responsive and helpful to guest inquiries and feedback.

Extras: Consider offering additional services or amenities that could enhance your guests’ stay, such as local guides, welcome baskets, or discounts at local businesses.

9. Collect and Act on Feedback

Encourage Reviews: Feedback is gold in the hospitality industry, especially for serviced accommodations. Implement a system for collecting in-person and online feedback, ensuring it’s easy for guests to share their experiences.

Continuous Improvement: Act on the feedback received, making necessary improvements to on-site facilities and services. Use positive feedback as testimonials to build trust with future guests and address any criticisms promptly to maintain a high standard.

10. Analyze Performance and Optimize

Track Financial Performance: To stay competitive, regularly analyze the performance of your serviced properties and benchmark against traditional hotels. Track metrics such as occupancy rates, average income per night, and guest satisfaction scores.

Adjust Strategies: Use data-driven insights to refine your offerings, adjust pricing, and improve marketing strategies. Stay agile, adapting to market changes and guest preferences to keep your property at the forefront of the serviced accommodation market.

Key Considerations For Successfully Operating Serviced Accommodation Properties

For your serviced accommodation to thrive, choosing a property that complements the local area’s vibe is key. A central location not only draws guests for its convenience but also promises a genuine taste of the locale.

It’s the balance between accessibility to key attractions and providing an authentic experience that will make your serviced accommodation stand out.

Renting or Purchasing

A serviced accommodation property can be acquired via two routes: purchasing or renting the property.

Renting requires a lower initial investment, offering an accessible route for new investors into the market.

Purchasing (and potentially refinancing) a property has the benefit of having ownership; however, it does require more capital.

For scalability and cash-flow purposes, I recommend renting your first few properties to get the ball rolling. If the right strategy is applied, you can earn your initial investment back within 1 year.

Initial Investment

When applying the rent-to-serviced accommodation strategy, you can start a serviced accommodation unit for approximately $10k. This initial investment isn’t just the rent and deposit on the property—it’s also the furnishings and the decor that turn a house into a welcoming stay.

How To Finance Your Investment?

When it comes to serviced accommodation, understanding your financing options is as crucial as selecting the right property. Depending on if you purchased or rented your serviced accommodation property, various types of financing are available.

In case you purchased a property, buy-to-let mortgages are the traditional route, but specialized financing solutions might be necessary for serviced accommodation. Buy-to-let mortgages tailored for serviced accommodation typically have higher mortgage interest rates, reflecting the higher perceived risk and potential for greater returns. It’s important to consider these higher costs when planning your investment to ensure long-term sustainability.

The right strategy, in my opinion, is to start by renting the first (a couple of) serviced accommodation units to get familiar with the concept and market, collaborate with sourcing agents and management companies, and generate cash flow. With this strategy, a serviced accommodation does require an initial investment of approximately $10k, which ideally should be financed from your equity

Serviced Accommodation Returns

When the right strategy is applied, a serviced accommodation property can quickly generate an ROE of 100%. This means you will earn your initial investment ($10k) back within one year!

Taking it to the Next Level: How To Start A Serviced Accommodation Business

After self-managing your first couple of units, you can take your serviced accommodation investment strategy to the next level by collaborating with a management company and leveraging AI tools to kickstart and scale your business.

Collaborating with a management company from the outset can ensure your venture in the SA business is both professional, efficient and scalable and key to run a growing (and more hands-off) serviced accommodation business.

Alternatives to Investing In Serviced Accommodation

If you’re contemplating alternatives to serviced accommodation, the traditional path of buying a property and renting it to a long-term tenant might appeal to you.

Applying the regular buy-to-let strategy can yield consistent returns over time and typically requires less day-to-day involvement than serviced accommodation properties.

Wrapping Up and My Experience With Serviced Accommodation

Serviced accommodation units generally offer higher returns than traditional rentals. In most cases, guests rent the property short-term and fully serviced and are willing to pay a premium for this! Also, the ability to adjust prices for peak demand times is a big upside when compared to a traditional buy-to-let strategy.

With this investment strategy, it is key to perform proper due diligence, as a successful investment starts with acquiring the right property for the right price and in the right location.

In my experience, investing in serviced accommodation is a very attractive real estate investment strategy because it requires low start-up capital, can generate high returns, and is highly suitable to boost your cash flow!

You can use the cash flow from this strategy to fund other investments; therefore, having only a couple of SA units in your portfolio can unlock a quicker growth of your overall portfolio!