Serviced accommodation is becoming a more popular property investment strategy in the UK. Across Europe, the UK has the highest supply volumes of serviced apartments and has the largest number of serviced accommodation to be commissioned.
What is serviced accommodation?
Serviced accommodation is furnished flats available for short or long-term stays. Amenities, housekeeping and a variety of services are provided within the rental price. And a qualified person is typically available to help guests.
Tip: If you’re wanting to purchase a property as a serviced accommodation, be sure to look into a property’s lease restrictions as some leases might restrict you from providing short-term lets.
With serviced accommodation, you don’t have tenants but guests who pay by the night in advance. Managing a serviced accommodation is typically more time consuming since you’ll have more turnaround than a traditional property investment, but a management company can minimise a lot of the hassle.
Note: There are fewer lending options available for this kind of investment, and many might require you to put down a large deposit. However, more choices are likely to become available as it becomes an even more popular choice among property investors.
Higher rental yields from serviced accommodation
Serviced accommodation can provide investors with much higher yields than traditional long-term residential tenancies. According to research from JLL, serviced apartments can regularly achieve yields from 6.5% to 9%.
Serviced accommodation naturally performs the best in an attractive location. A half a mile can make a big difference with these kinds of property investments, so invest in a convenient city centre location popular among tourists and businesspeople. It’s important to note that capital growth can be lower with serviced accommodation.
Tax benefits of serviced accommodation
Serviced accommodation brings forward the opportunity to take advantage of tax benefits you can’t get through traditional buy-to-lets. If a property qualifies as a furnished holiday let, you can claim Capital Allowances on items of the plant, which includes furniture, and fixtures in the property. These types of expenses can then be deducted from your pre-tax profits.
Additionally, Section 24, which has been a source of headaches for many investors, doesn’t apply to furnished holiday lets. Changes to Section 24 are forcing buy-to-let landlords to lose tax relief they used to be able to claim. For example, in the 20120/21 tax year, investors who have bought properties as an individual won’t be able to claim any mortgage interest relief.
With a furnished holiday let, you can take advantage of numerous capital gains tax relief. Entrepreneurs’ relief, roll-over relief and hold-over relief can provide you ways to reduce the amount of tax you pay. Many of those investing in serviced accommodation have even been able to generate years of profits tax-free. As tax changes continue to heavily impact property investors, serviced accommodation could be a great opportunity to see more tax benefits than traditional buy-to-lets.
Assess serviced accommodation property investments
To help you assess a serviced accommodation investment deal, use PropertyMenu’s deal calculator to find transparency behind projected rental yields and operating costs. We base our calculations on the average lengths of short stays, occupancy rates, and number of changeovers per month to help you accurately benchmark property investment opportunities.