Serviced apartments are sometimes overlooked in terms of property investment amongst the more orthodox residential commercial and student sites, but there are many compelling reasons to flesh out your property portfolio with them. They are no different to other investment avenues in terms of demand and are superior in a few respects. Here, I will outline why many investors are turning to serviced apartments to deliver excellent rental returns and good prospects of capital growth.
What are serviced apartments?
A serviced apartment is a fully furnished apartment available for short or long term lets. They provide an array of amenities onsite which liken them to hotels- these typically include:
- Room service
- Cinema room
- Entertainment room
- 24-hour concierge
- Laundry room
- Bar and restaurant
- Rooftop garden
Your ideal demographic for serviced apartments is corporate lets for companies who house their employees here rather than in hotels.
No void period concerns
Managing companies will be in place to take on your serviced apartment and make sure you earn a set about of rental income every month regardless of whether your property is let out or not. Normally, the apartments are situated in a spot where there is likely to be plenty of demand so there is little chance of vacancies anyway and because you have a company managing this for you; it’s in their interests to let this out for you as well.
Any potential problems with repair and maintenance are completely taken care of by the managing company. Minor repairs, room cleaning and any accidental damage are all covered by the business operator meaning the landlord can rest easy with a hassle-free investment. This hands-off approach allows many investors to buy a serviced apartment and simply forget about it whilst they earn a healthy rental income.
The long-term agreement that exists between the landlord and managing company means that your rent every month is guaranteed with the managing company taking a share of the profits too. There will be an agreed yield written into the contract so that you as the investor are assured your money regardless of void periods, maintenance concerns or anything else. There will be pre-negotiated rental reviews to ensure you’re getting a good market rate. This makes serviced apartments a great option if you’re looking for something that provides a reliable, regular cash flow.
Additional costs taken care of
A minor but common drawback for investors is the additional ground rent and service charge costs involved, but with managed serviced apartments, these do not impact your rental income in any way. The agreed yield between yourself and the managing company is normally the NET yield, which already takes the additional fees mentioned plus management costs into consideration. This makes sure there are no hidden fees involved and make things as transparent as possible for the investor.
A key part of buying any property is to do your research in terms of where it’s located, and serviced apartments are no different. The developers have the same attitude when they decide where to situate their latest project. They would not invest hundreds of thousands of pounds building a high end serviced apartment in a bad area, so the investor can be safe in the knowledge that the developer knows what they’re doing. The company will most likely have dedicated researchers scouting out specific locations based on a range of factors that will make them suitable for developing serviced apartments. These factors may include existing or future infrastructure, socio-economic development and the demographic profile of the area. Regardless, the benefits of each location will be spelled out for you to help you decide on where to buy.
Hotels no longer the given choice
Hotels have been the default option for so long when it comes to staying in temporary accommodation but with the current advent of companies like Airbnb, there has been a shift in public preference. More budget friendly options like serviced apartments that still come with excellent facilities are becoming more and more popular. Business and leisure travellers alike appreciate the ‘home-from-home’ environment they offer; total independence to come and go, eat, drink and sleep as you please, but with a degree of service included that you won’t find in many hotels.
Obviously, nobody is forecasting the imminent demise of the hotel industry; but anybody with an eye for a property investment with a generous long-term fixed yield income could do a lot worse than investigate the emerging serviced apartment sector.
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