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Guide to serviced accommodation

Serviced accommodation

What is serviced accommodation?

Serviced accommodation is one of the fastest growing sectors in the property rental market, providing tangible benefits to both landlords and guests.

Pitched between a traditional holiday-let and a hotel, serviced accommodation is becoming increasingly popular among tourists, business travellers, and those looking for longer stays.

What is a serviced apartment?

A serviced apartment describes a furnished apartment that provides amenities, housekeeping, and other services for guests within the cost of rental.

Serviced apartments provide amenities similar to those offered in hotels, such as laundry and cleaning, and sometimes include access to gyms, and even concierge services, but in a self-catering setting.

Serviced apartments usually include a full kitchen, separate sleeping area, and bathroom, with internet and all utilities included.

What does serviced accommodation mean?

In a nutshell, serviced accommodation means just that – the landlord provides ‘services’ to guests staying in the accommodation, from simple housekeeping to more comprehensive amenities.

Some purpose-built serviced apartment blocks have in-house gyms, restaurants, shops, and 24-hour concierge services.

But serviced accommodation doesn’t have to be an apartment in a block – it can be any type of residential property let out with additional services provided and available for short-term rents from one night to several months.

What are the benefits to landlords of serviced accommodation?

Landlords and property owners are increasingly looking to serviced accommodation to maximise the yield on their rental property.

With a traditional buy-to-let property, whether it’s a house or apartment, landlords secure a tenant on a six-month assured shorthold tenancy (AST) agreement, receiving monthly, or weekly, rental payments.

This provides a secure income for at least six months, but there are benefits to offering serviced accommodation, including the greater flexibility of being able to offer the property for short periods as well as longer lets.

There is also the potential to greatly increase your rental income, as the payment received from guests on multiple short-term lets will usually add up to more than the monthly rental received from a tenant on an AST.

For example, you may be receiving £600 a month rental income on an AST, but could rent out your property for £80 a night – or £560 a week – as serviced accommodation.

While there are likely to be void periods, you could exceed your monthly AST rental, depending on location and marketing.

Property owners can also find that it is easier and quicker to sell a short-term rental  as there is no tenant to consider.

What are the drawbacks to landlords of serviced accommodation?

While the potential rental income from serviced accommodation can be attractive, there are some things to bear in mind, including:

  • you will need to arrange and pay for the ‘services’ that form part of the rental, which are likely to include housekeeping / cleaning, WiFi, gas and electricity, at a minimum;
  • the cost of marketing may be higher than a normal buy-to-let rental, because you will be looking for guests more regularly;
  • void periods can see your income drop, especially in the winter;
  • you will need to furnish your serviced accommodation to a good standard in line with the amount you are charging guests to stay there;
  • if you decide to manage the property yourself, you will need to be on-hand to deal with guest queries and any issues that arise. If you choose to use a specialist letting agency to manage this then there will be fees involved, which you will need to take into account when calculating your expected yield;
  • you will need to either arrange a meet and greet for new guests or set up a coded security box so that guests can obtain their keys.

What should serviced accommodation include?

Serviced accommodation should be a step up from a hotel room, providing a home-from-home environment with everything apart from food included in the rental price.

Landlords should expect to provide the following:

  • a fully equipped kitchen, including everything required to prepare food, and a dishwasher and washing machine;
  • a bathroom;
  • a furnished living area;
  • WiFi and a TV;
  • at least one separate bedroom, or dedicated sleeping area for studio apartments;
  • all utilities such as water, electricity and gas, if applicable;
  • a housekeeping service, either weekly or more frequently.

Do serviced accommodation lets have to be furnished?

Yes, a serviced accommodation property must be fully furnished.

What type of guests stay in serviced accommodation?

Serviced accommodation attracts a wide range of guests, from tourists to business people, and those looking for somewhere to stay either between house moves or during renovations.

Businesses often block book serviced apartments and use them for staff either working away from their usual base for extended periods, or for those attending training programmes.

Its flexibility, allowing visitors to stay from one night to several months, opens up completely different markets for landlords compared to a standard buy-to-let arrangement.

You can also negotiate different price rates for different lengths of stay or different times of the year, similar to a holiday let but with the option of renting to a business person working away from home for weeks at a time.

Why are serviced apartments becoming more popular with guests?

Serviced accommodation not only provides flexibility for landlords, but guests also benefit from:

  • greater space compared to staying in a hotel room;
  • better value for money, with serviced apartments typically cheaper than an equivalent hotel room;
  • more privacy, with the whole apartment or house to yourself.

What is the difference between a serviced and a non-serviced apartment?

Those providing serviced accommodation must provide certain benefits to their guests, such as regular housekeeping.

Essentially, a non-serviced apartment could be exactly the same type of property but without the additional services.

Non-serviced apartments will usually be self-catering, with the guest responsible for the cleaning during their stay. There is unlikely to be any on-site security or reception staff to help with any issues.

Is serviced accommodation different to a holiday rental?

There are some key differences between serviced accommodation and holiday rentals.

Whereas a serviced apartment is available from one night to several months and caters for a wide range of guest-types, holiday rentals are traditionally residential properties that are commercially let to holidaymakers for weekends, weeks, or fortnights (or for the owner’s occasional use), but with no added servicing.

Are serviced apartments a good investment?

The serviced apartment sector is one of the largest growth areas in the UK rental sector.

Like with any rental property, whether it’s buy-to-let, holiday rental, or serviced accommodation, location is key to both maximising income and maintaining, or growing, the value of your investment.

No property investment is without risk, so make sure you know the area, the level of demand for serviced accommodation in the region, and the property, before spending your money.

Is serviced accommodation profitable?

Again, location is key. Choose a desirable area and market your property at a sensible price, and you shouldn’t have a problem finding guests but invest in a less popular location and you could have significant void periods.

You need to make sure your income exceeds not only any mortgage payments and the costs associated with fulfilling your landlord responsibilities, but also the cost of providing services to your guests.

Overall, serviced apartments tend to yield higher rates compared to a normal buy-to-let property rented out on an AST – between 6-9%, compared to 3-5%.

Is planning permission required for serviced accommodation?

In some circumstances, depending on the view of the local authority, you may need to obtain planning permission to change a residential or buy-to-let property into serviced accommodation.

It all depends on whether the local authority considers there has been a ‘material change’ in use, from residential (C3) to something more like a hotel or guest house (C1).

There is currently no specific planning designation for serviced accommodation, which falls between a buy-to-let and a hotel – so it’s vital that you seek advice from your local authority before buying or converting a property.

The reason that some councils are taking a harder line is because serviced apartments – which can have an ever-changing roster of guests – can be unpopular with neighbours, particularly where there are shared communal areas like hallways, and can also impact the availability of longer-term rental properties.

Some councils restrict the number of days a year you are able to rent out as short-term lets – which significantly cuts down on your ability to earn enough income to make the business viable.

What is the 90-day rule?

Landlords in Greater London are only allowed to rent out a property for short-term lets for a maximum of 90 days a year.

The rule was introduced to protect the supply of long-term rented housing in London. Increased demand for fewer houses leads to increases in buy-to-let rental prices.

If you want to rent as short-term lets for longer than 90 days in a calendar year, you will need to apply for planning permission, although this is very rarely granted for existing residential properties.

Since 2017, AirBnB has automatically removed listings for properties in London once they reach the 90-day limit.

What type of mortgage do I need for serviced accommodation?

You will need a commercial mortgage to fund serviced accommodation – a standard buy-to-let mortgage isn’t suitable.

Buy-to-let mortgages are designed for properties that are rented out for long-term periods, at least six months on an AST.

A serviced accommodation mortgage may have a restriction on the maximum amount of time your property can be let to the same occupier, so you’ll need to be aware of any conditions when marketing your property.

Can leasehold studios become serviced accommodation?

Leasehold studios and apartments can become serviced accommodation only if the terms of the lease allow for short-term lets.

Most leasehold apartments allow for them to be rented out on an AST basis, but you will need to check the terms to see if short-term lets are permitted.

How to set up serviced accommodation

When setting up serviced accommodation, you will need to check that you have the following in place.

  • The right mortgage: don’t try to use a buy-to-let mortgage or a standard mortgage for a serviced apartment as you will be in breach of the lender’s terms.
  • Permission to rent: does your lease give you permission to rent out as a short-term let?
  • The right insurance: we’ll discuss this in more detail below, but you will need specialist insurance that provides you with the correct cover for serviced accommodation.
  • Planning permission: check with your local council what rules they have in place for serviced accommodation, including any restrictions on short-term rental periods and whether you need change of use. Failing to do so could lead to hefty fines.

You’ll also need to fully furnish the property, ensure all utilities including WiFi are up and running, and arrange for the servicing aspects of the rental such as cleaning and laundry. If you have the time and live nearby, you may be able to do this yourself – although you need to be available to handle any issues almost on a 24/7 basis. Alternatively, you can engage a professional company to oversee the property, manage guests and all other services. This is, of course, another cost to consider.

What type of property is perfect for serviced accommodation use?

One and two bedroom apartments in city and town centres tend to be ideal for people looking to get into the serviced accommodation business.

They are easier and cheaper to maintain than houses, and it’s much easier to find guests, catering to both business customers and those looking for a base for a city break or holiday. They can also fare better during the quieter months, a city break is still a popular option during the winter, a seaside holiday not so much.

Can limited companies own serviced accommodation?

Limited companies can own serviced accommodation, but there are advantages and disadvantages to doing so.

The three main reasons why a limited company may want to own serviced accommodation are:

  • to stay more in control of your tax by choosing when to declare your profits;
  • to gain financial advantages if you are running multiple properties through one limited company;
  • inheritance tax planning.

There are, of course, costs to setting up and administering a limited company, and lenders may charge higher rates to lend to a limited company than a private individual, and applications can be more complicated.

Can you do rent-to-rent with serviced accommodation?

Rent-to-rent is where a ‘renter’ agrees to pay a guaranteed rent to a landlord for a certain period of time, the renter then lets the property to a ‘tenant’ in an effort to make a profit.

With serviced accommodation, this could be a way for a renter to make a good profit by turning a buy-to-let property into short-term lets.

For example, a renter could pay the property owner a monthly rent of £500, and then rent out the same property for £80 a night to guests.

There are risks, clearly, because you could make a loss if you fail to rent out the property for enough days to cover your payments.

What insurance do I need for a serviced apartment?

It’s vital that you have the right specialist serviced accommodation insurance in place, because some cover is unique to these types of policies.

Taking out the wrong policy, like buy-to-let insurance or standard home insurance can leave gaps in cover, or your policy could be invalidated if the insurer is not aware of or doesn’t fully understand the property use.

For example, if you find yourself with a policy not designed for serviced accommodation, you could have:

  • inadequate employers’ liability insurance, which is a legal requirement if you employ anyone in relation to the property;
  • no or only limited loss of income cover;
  • no theft by guests cover, for example standard landlord or household policies require proof of forcible and violent entry or exit

If you rent out your main residence for only a few weeks a year then some insurers will provide a short-stay extension to your home insurance, but if the property is let out full time you will need a bespoke serviced accommodation policy.

What is covered under a serviced accommodation insurance policy?

Serviced accommodation insurance has similarities to holiday home insurance, but is also designed to cover individual flats and blocks of flats, as well as houses and more unusual short-term lets like converted shepherds’ huts.

As well as cover for buildings, contents, and property owners’ liability, Alan Boswell Group’s serviced accommodation insurance provides cover for:

  • employers liability;
  • optional extra for pet damage;
  • business interruption, which covers loss of rent from confirmed bookings and your expected income based on booking history and seasonal fluctuations;
  • rent-to-rent contracts;
  • theft and malicious damage by guest cover;
  • periods when the property isn’t let out, between 30 and 45 days at a time on multiple occasions during the year.

To discuss the right insurance for your property, contact our expert team on 01603 218086.