Serviced Accommodation is a type of real estate investment or business activity that entails renting out residential premises for a short period of time – anywhere from a day to many months.
Over the last five years, companies like Airbnb and Booking.com have made it possible for a wide spectrum of people to have a more cost-effective, pleasant, and flexible alternative to a hotel room.
As for serviced accommodation, the most lucrative option for various investors is R2SA. Many people now consider rent to serviced accommodation, or rent to SA, to be the “Holy Grail” of property investing.
Rent to Serviced Accommodation (R2SA) involves renting a home (and therefore avoiding the need for a mortgage or a deposit) and then renting it out as serviced accommodation.
Why is this e-guide important for me for rent to serviced accommodation?
If you are a landlord looking for your investment option, you may find R2SA the right choice. However, as easy as it seems, you may still want to know more about yourself to be safe with your investment.
R2SA is a tempting offer but how does it work and how can it guarantee you the rent without a little hassle? Yes, we understand that you have all these questions in mind. Therefore, we have designed an e-guide for you to understand R2SA and determine your moves by keeping dos and don’ts of R2SA in mind.
Dos and Don’ts of Rent to Serviced Accommodation (R2SA)
What is Rent to Serviced Accommodation (R2SA)?
R2SA works for investors with little money and landlords with less time for maintenance. Rent to Serviced Accommodation, as the name suggests, is the way of investment where you rent out the property from another landlord. And further, rent it out for Serviced Accommodation.
What is in it for a landlord? Well, he is happy as he is assured of getting guaranteed rent without any hassle of maintaining the property regularly.
What is in it for an investor like you? You get the profit in terms of reward for maintaining the property by giving it your time and energy.
Still, it is a combination of both benefits and disadvantages, and without knowing them, you will fall into the abyss.
Benefits of Rent to Serviced Accommodation (R2SA)
- You are not purchasing the house; rather, you are renting it. Obviously, this implies you won’t have to worry about acquiring a mortgage.
- A deposit of at least 20% is required when purchasing a home with a mortgage. You’re not buying the house with R2SA, therefore there’s no need for a mortgage or a deposit.
- There is no need to pay Stamp Duty. While you may engage a solicitor to draft an agreement for you, the cost will be nowhere near that of standard property conveyancing.
Disadvantages of Rent to Serviced Accommodation (R2SA)
- As you do not own the property, you will not benefit from any growth in its value over time.
- You must pay the landlord even if you haven’t paid your rent in a month and haven’t done any maintenance.
- Paying your landlord is essentially the same as paying your mortgage; if you bought the house entirely. So, the two are not that dissimilar. You don’t have the same level of control, though, as if you owned the property outright.
How can you make money through Rent to Serviced Accommodation (R2SA)?
We all know that Serviced Accommodation is when you rent out an apartment or a house for a brief period. This will frequently necessitate the use of online platforms. But when we talk about R2SA, you have multiple options to earn through it.
This works in a straightforward manner. You rent a property from a landlord for a set rent and then rent it out on booking websites.
The landlord receives a long-term guaranteed rent from you and does not have to worry about property maintenance because you are responsible for it. You pocket the difference after renting the property out for short stays, which creates more income than a long-term tenant.
Or find a landlord who owns an HMO…What about it?
Someone who is willing to give you control in exchange for a fixed rent can help you earn through the R2SA. Make an agreement with the landlord to take over the property for a specified period in exchange for a monthly rent guarantee.
Look for buildings with many reception rooms that can be transformed into bedrooms when looking for outstanding houses to convert into HMOs. As a single let, you can pay the market rent (or even a little less) to the landlord and profit once it is let as an HMO.
Finding your Serviced Accommodation investment
You can advertise on websites to find these short-term tenants. Please keep in mind that the rooms may or may not be full at any given time. The rent is much greater because they are only employed for a limited time.
You should go for a 70% occupation rate, which is a reasonable goal. It should take anywhere from £500 to a few thousand pounds depending on what it is and where it is.
As this is Serviced Accommodation, keep in mind that the words ‘Serviced’ and ‘Customer Service’ are vitally crucial. It has the appearance of a motel room. As a result, visitors may expect a comprehensive choice of amenities. You must provide a cleaner if the property is to be kept clean.
Do’s and Don’ts of Rent to Serviced Accommodation (R2SA)
You might think of yourself as a better investor after knowing everything about the R2SA. However, there are still some dos and don’ts that you need to keep in mind before going for it. Yes, R2SA is less complicated, but if you don’t manage your budget or contracts properly, you might end up paying rent to the landlord without having any profit in your pocket. So, watch out for seasons and plan the R2SA investment ahead.
Here are some of the Dos and Don’ts to help you keep your business going smooth!
Do’s of Rent to Serviced Accommodation:
Do the background check:
For each potential tenant, you should look into their credit, job, and previous landlord references. All three conditions must be passed in order for someone to access a property that you own and live in.
There can’t be 2 good-looking ones and one bad-looking one; at the same time. In many places, you can only access your property after someone has moved in under specified circumstances, so it’s critical to hire the right people.
Treat it like a business:
Some people enter the real estate market with the expectation of purchasing a house, renting it out, and then sitting back and relaxing.
According to specialists, this is not the case. Even if you are in charge of someone else’s property, you must keep an eye on your own financial and commercial objectives.
Stick to the contract:
Is there a penalty if you pay your papers late by more than five days? It must be charged at all times. Everyone has an explanation for everything. Everyone feels you should make an exception for them, but you must adhere to the lease’s terms to the letter. The judge will challenge whether you apply your policy equitably to all renters if you go to court. If you do, you should have no issues.
Do have an exit strategy form R2SA:
Like any other investment, you should have a plan for how long you want to keep it and when you want to sell it. Remember to throw in what you’ll spend on a real estate agent to sell the property when calculating your exit point—typically 6% of the sale price.
Don’ts of rent to serviced accommodation:
Don’t get emotionally attached while investing in Rent to Serviced Accommodation:
It’s not about making friends when you’re a landlord. If you become friends with your tenants, they may believe that you will overlook small property damage or late payments.
You must approach it with the belief that you will succeed regardless of the circumstances. If you are clear and businesslike, your tenants will respect and obey the rules better.
Don’t pay upfront for furniture:
You may rent furniture from a variety of companies. This means that rather than paying £5-7K upfront to furnish your property, you pay a monthly fee.
This improves cash flow and removes costly upfront fees, allowing you to invest more money in more units.
Don’t convert an existing property:
Okay, so if it’s already in a great location, this might work, but the location is extremely important for this type of investment.
Is there a demand for this type of property as Serviced Accommodation in the same region if you chose a place for its possibilities as a typical to-sell investment?
While you should ensure that your Serviced Accommodation will work as a typical to-let so that you have a backup plan, this does not indicate that your successful rental property will also work as a serviced accommodation.
Don’t have more than 2 bedrooms:
Most of your tenants won’t require more, and having more may force your home into an HMO area, requiring HMO registration and rules.
Don’t forget about the feedback:
As Serviced Accommodation is a very review-driven sector, you must ensure that every review is read and responded to immediately wherever your homes are listed.
You will occasionally receive a poor review, no matter how fantastic your home is.
Stay calm and do your best to politely answer each of their complaints, as your glowing positive reviews will speak for themselves.
Don’t overestimate the budget:
There are a lot of fees here that you might not deal with in a conventional BTL home, from the cost of having your house cleaned between tenants to the continuous costs of letting agencies and online listings, so you NEED to keep track of it all!
Never pay rent upfront:
In fact, if you know how to position it appropriately, you should always get 1-2 months’ rent-free. The idea is to have money pouring in from bookings before we have to pay anything to the landlord.
You must convince yourself that you have a fantastic offer for the landlord. It’s simple to receive 1-2 months’ rent-free once you know how to close the deal.
You can utilize the money you save to set up additional units once you’ve saved 1-2 months’ rent and the deposit.
Other considerations to remember for Serviced Accommodation
Serviced Accommodation (or apartments or rooms) is a growing property strategy, but to avoid an unsustainable business model, make sure you educate yourself and follow the rules. If you achieve all of these things, you may expect a high-cashflow property strategy with a small initial financial capital investment.
Before investing in R2SA, as an investor, you must conduct research and plan ahead. Besides, never forget about the paperwork even if you are just managing the property, it is more important.
Want to start your Rent to Serviced Accommodation (R2SA) business? Let’s Talk
Many people believe that property investment in the United Kingdom is prohibitively expensive and only available to the wealthy. Is this true? It requires a significant amount of capital, at least £50,000, plus a mortgage, and we will only be able to generate £200-£400 in monthly cash flow?
This is not the case!
It doesn’t have to be that way, and you’ve come to the correct place to learn how to establish a cash flow property portfolio without any prior experience or large sums of money.