How to fund Serviced Accommodation
Introduction
In the world of property investment, Serviced Accommodation stands out as a lucrative and rapidly growing sector. These are fully furnished accommodations available for both short-term and long-term stays, providing hotel-like amenities such as room service, housekeeping and fitness centres.
The importance of funding in serviced accommodation cannot be overstated. It is the lifeblood that enables the acquisition, development and management of these properties, ultimately driving profitability and growth. Check out our recent serviced accommodation loan in Wrexham that we did for a new borrower.
Understanding Serviced Accommodation
Serviced Accommodation refers to fully furnished properties that are available for short-term or long-term stays. They are a popular choice for both tourists and business travellers due to the convenience, comfort and flexibility they offer. There are various types of serviced accommodations, including:
- Serviced Apartments: These are apartment complexes that are rented out on a nightly basis similar to a hotel.
- Holiday Homes: These are properties located in vacation spots, rented out to tourists for short periods.
- Corporate Housing: These are residential properties that companies rent out for their employees who are in town for an extended period.
Investing in serviced accommodation comes with several benefits. These include a higher rate of return compared to traditional rental properties, flexibility in terms of rental periods, and a steady stream of income due to high demand from tourists and business travellers.
According to a report by Alan Boswell Group, the target audience for serviced accommodation is broad, encompassing tourists looking for a home-like experience during their travels and business travellers seeking comfortable stays for their work trips. This wide customer base makes serviced accommodation a profitable venture for investors.
In the next section, we will delve into the various funding options available for serviced accommodation.
Funding Options for Serviced Accommodation
When it comes to funding serviced accommodation, there are several options available to investors. Each option has its own set of advantages and requirements, so it’s crucial to understand them to make an informed decision.
- Serviced Accommodation Finance: This is a specific type of loan designed for serviced accommodation properties. It takes into account the unique aspects of this type of property, such as higher turnover and maintenance costs.
- Airbnb Finance: Some lenders offer finance options specifically designed for properties listed on Airbnb. These loans consider the potential income from the Airbnb listing in their affordability assessments.
- Flexible, Low-Interest Loans: These loans offer lower interest rates and flexible repayment terms, making them an attractive option for many investors.
- Buy-to-Let Finance for Serviced Accommodations: This is a mortgage designed for properties that will be rented out. The potential rental income is considered when assessing loan affordability.
- Serviced Accommodation Loans, Bridging Loans, Airbnb Mortgages, Serviced Apartment Loan, Holiday Let Loan: These are specific types of loans designed for different types of serviced accommodation properties.
- Commercial Property Loans: These are loans used to purchase or refinance commercial properties, including serviced accommodations.
The Role of New-Build Properties and Holiday Let Conversions
New-build properties play a significant role in serviced accommodation. They offer modern amenities and designs that appeal to tourists and business travellers. Moreover, they often come with warranties, reducing maintenance costs and providing peace of mind for investors.
Holiday let conversions involve transforming a regular property into a holiday let, which can then be rented out to tourists. This can be a cost-effective way to enter the serviced accommodation market, especially in tourist hotspots.
Major and Minor Refurbishments
Refurbishments, both major and minor, are crucial in increasing the rental income of serviced accommodation. They enhance the appeal of the property, allowing you to charge higher rental rates.
Refurbishments can range from simple cosmetic updates like painting and decorating to more significant structural changes like adding rooms or upgrading kitchens and bathrooms. Funding for refurbishments can come from various sources, including savings, loans, or specialist refurbishment finance.
Understanding Loan-to-Value (LTV) Ratios in Serviced Accommodation Finance
In the realm of serviced accommodation finance, the Loan-to-Value (LTV) ratio is a critical factor. It is a financial term used by lenders to express the ratio of a loan to the value of the property purchased. For instance, if you’re buying a property worth £200,000 and you have a £50,000 deposit, you’ll need a loan of £150,000. This gives an LTV ratio of 75%.
In serviced accommodation finance, industry-leading LTV ratios can go as high as 75-80%. This means that investors can borrow a significant portion of the property’s value, reducing the amount of capital they need to invest upfront.
The Importance of Acceptance Rates for Serviced Accommodation Loans and Holiday Let Finance Packages
Acceptance rates for serviced accommodation loans and holiday let finance packages are a crucial factor to consider when seeking funding. They represent the percentage of applicants that are approved for a loan.
To improve your chances of loan acceptance, ensure you have a good credit score, provide all necessary documentation, and demonstrate a clear plan for the property. It’s also beneficial to work with a specialist broker who understands the serviced accommodation market and can guide you through the application process.
Development Finance Solutions for Build-to-Let Serviced Accommodation Projects
Development finance solutions are designed to fund the construction or refurbishment of properties, including build-to-let serviced accommodation projects. These loans are typically short-term, ranging from a few months to a few years, and are repaid once the development is complete and the property has been sold or refinanced.
These solutions play a crucial role in serviced accommodation projects, providing the necessary funds to transform a plot of land or a rundown property into a lucrative serviced accommodation. They offer a way for investors to undertake larger projects that can yield significant returns.
FAQs
In this section, we’ll address some frequently asked questions about funding serviced accommodation.
- What is the best way to fund serviced accommodation?
The best funding option depends on your financial situation, the type of property, and your long-term goals. Options include serviced accommodation finance, Airbnb finance, buy-to-let finance, and commercial property loans.
- Can I get a mortgage for a serviced accommodation property?
Yes, several lenders offer mortgages specifically designed for serviced accommodation properties. These include serviced accommodation loans, Airbnb mortgages, and buy-to-let finance for serviced accommodations.
- What is an LTV ratio in serviced accommodation finance?
The Loan-to-Value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. In serviced accommodation finance, industry-leading LTV ratios can go as high as 75-80%.
- How can I improve my chances of loan acceptance?
To improve your chances of loan acceptance, ensure you have a good credit score, provide all necessary documentation, and demonstrate a clear plan for the property. Working with a specialist broker can also be beneficial.
- What is the role of new-build properties in serviced accommodation?
New-build properties play a significant role in serviced accommodation. They offer modern amenities and designs that appeal to tourists and business travellers. Moreover, they often come with warranties, reducing maintenance costs and providing peace of mind for investors.
- What are holiday let conversions?
Holiday let conversions involve transforming a regular property into a holiday let, which can then be rented out to tourists. This can be a cost-effective way to enter the serviced accommodation market, especially in tourist hotspots.
Why are refurbishments important in serviced accommodation?
Refurbishments, both major and minor, are crucial in increasing the rental income of serviced accommodation. They enhance the appeal of the property, allowing you to charge higher rental rates.
- What are development finance solutions?
Development finance solutions are designed to fund the construction or refurbishment of properties, including build-to-let serviced accommodation projects. These loans are typically short-term, ranging from a few months to a few years, and are repaid once the development is complete and the property has been sold or refinanced.
- What factors affect the acceptance rate for serviced accommodation loans?
Several factors can affect the acceptance rate for serviced accommodation loans. These include your credit score, the type of property, the intended use of the property, and the loan-to-value (LTV) ratio. To improve your chances of acceptance, it’s important to have a clear plan, provide all necessary documentation, and work with a specialist broker.
- Why is there such huge demand from property investors to invest in serviced accommodation?
Higher Returns: Serviced accommodation often yields higher returns compared to traditional rental properties. This is because they can be rented out at a higher rate on a per-night basis, similar to hotels.
Flexibility: Serviced accommodation offers flexibility in terms of rental periods. They can be rented out for short-term stays, which allows for higher rates, or for long-term stays, which ensures a steady stream of income.
Growing Market: The market for serviced accommodation is growing, driven by changes in travel and accommodation preferences. More and more travellers, both tourists and business travellers, are opting for serviced accommodation due to the comfort, convenience, and home-like environment they offer.
Diversification: Investing in serviced accommodation allows property investors to diversify their portfolio. This can help spread risk and increase the potential for returns.
Tax Benefits: In some regions, serviced accommodation is classified as a commercial property for tax purposes, which can offer certain tax advantages compared to residential properties.
Operational Advantages: Unlike traditional buy-to-let properties, serviced accommodations are typically managed by a management company. This means investors do not have to deal with day-to-day operations like maintenance, tenant issues, and rent collection.
Demand: There is a high demand for serviced accommodation from a broad audience, including tourists, business travellers, and even locals looking for short-term stays. This high demand ensures a steady stream of income for investors.
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