The Top Five Serviced Accommodation myths and solutions Part 2

By Paul Smith

Jan 26

The Top Five Serviced Accommodation myths and solutions Part 2. 

In Part 1, I discussed the top 2 Serviced Accommodation myths. If you haven't read part 1 yet, I suggest you give it a read first.

Great so here is part 2, where I will cover the next 3 myths in Serviced Accommodation. 

Myth 3 – Is the market already saturated?

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5 Rookie Serviced Accommodation Mistakes

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A lot of people say to me, "Oh, it's all right for you Paul, you did this years ago. You're fine, you're established. But, you know, surely the market's going to get saturated at some point. It's too late to get in." Well, booking.com, Airbnb and all the rest estimate that between and now and 2020 they're going to need twice as many units, because the market for serviced accommodation in the UK is going to double.

If you want to prove that to yourself, all you need to do is get onto booking.com or Airbnb and see how many properties are on the market around you. Over the years, I've opened properties, serviced accommodation units in Dunbarton. When I first started there, there were no competition. Lincoln, when I first did the research there, no competition. Peterborough and did the research there, no competition. Doncaster, did the research there, no competition. Bournemouth, did the research there, no competition.

These are some quite large places, so don't take my word for it, just go and have a look on booking.com and check it out. I was just giving you, whatever that was, five, six examples of places where the difficulty in establishing demand wasn't that the market was saturated, but rather it was there was no competition. You'll find place after place after place in the UK where there's still, to this day, no competition.

Fair enough, in the biggest city London, there's quite a few serviced accommodation units, but even then there's massive parts of London with none. The serviced accommodation units that are here tend to be very heavily concentrated. The second city serviced accommodation in the UK in terms of number of units is Edinburgh, and Edinburgh is certainly under supplied. I guess you could argue, potentially, in some very specific areas of some very specific cities, yeah, there's a danger of saturation. But, for 99% plus probably of the UK, we're nowhere near saturation.

As I've just said, the opportunity really is slightly difficult to establish, simply because there is no competition. So the market is not saturated for serviced accommodation in the UK. Demand is set to double according to the industry leaders.

Myth 4 - My Mortgage is going to stop me from running Serviced Accomadation

How do I get around mortgages, planning permission, leases?

Okay, next I get asked all the time how do I get away with, how do I get around mortgages, planning permission, and lease hold issues, whatever. Those are probably the three top ones. Here's where we start to do with compliance. You don't get away with, you don't work around, you do it properly. You need to get educated to do it properly because some people say education is expensive. My answer to that is always, try ignorance. You go and apply for a buy to let mortgage, and then use it for serviced accommodation without telling anyone on purpose, that's mortgage fraud. You do that, and you'll probably find it extremely difficult to get any finances for anything ever again, because you're going to get put on all sorts of black lists, and you could face penalties. So please do not do that.

Mortgages

Let's talk through those compliance issues one at a time. Can you use a normal buy to let mortgage for serviced accommodation? No. Does that mean you can't do serviced accommodation? No. You need to understand for all of these things how to do it properly. It's not hard, it's just different from what most people are used to.

So, if you're making notes for yourself here, you're not going to get away with work around, pull the wool over anybody's eyes. I want to help you, Touchstone wants to help you do it properly. You need to get mortgages where serviced accommodation is a permissible use. You can do this from High Street Lenders, by which I mean the normal ... not all of them, but a number of the banks and building societies that give normal buy to let mortgages, have got specialist products that are suitable for serviced accommodation. You obviously need to know which ones they are and it changes all the time, so there's not much really point in me writing that down here. You need current, up to date information, which we're very happy to share with you.

The second route you've got is commercial finance. Now, I could do a whole separate post, a whole separate, massive pile of information on commercial finance. Most people do not use commercial finance because the myth exists that they can't. Person after person after person tells me, "Well, I can't get commercial finance because I don't have the right experience, and unless you've already got commercial finance you can't get it." Well, if that was true, how would anybody ever get commercial finance the first time?

Of course it's possible to get first time commercial finance, you just need to know how. You have to have the right commercial broker, and we're going to help you with that too. The myth here to do with serviced accommodation is extremely difficult to do mortgages is not quite true. You certainly can't just go ahead and use a box standard buy to let mortgage. No, you can't. You need to know what you're doing.

Planning permission

The second issue that I get asked about a lot of the time is well, it's just a normal C3, which is residential house in England and Wales. I can't use that for serviced accommodation. Well, actually you might be able to. Some councils will let you. You need to know how to ask the question, because often the answer you get depends on the question you ask, and very often the planners are understaffed, run around like lunatics, and the last thing they've got time for is to decode somebody's ramblings when the person themselves doesn't really know what they're asking for.

Anyway, long and short of it is some local authorities will require planning permission in England and Wales, that's going from C3 to C1. But many don't, so before you get all excited about planning permissions and say I can't do it because of planning permission, it's very, very, very rare that you can't do it at all. You might have to apply for planning permission, you might have to comply with various requirements, but as long as you know what you're doing, as long as you know to apply for the council, the vast, vast, vast majority of local authorities you won't even need planning permission. You can just tell them what you're doing and they'll say fine, crack on.

Those where you do need planning permission, doesn't mean you can't do it, just means you need to get planning permission. Again, we can help you with that. So please, please, please do not believe the myth that you can't do serviced accommodation because of planning permission. Not true.

Leases

Okay, finally lease hold issues. A number of people have said to me over the years, well many people have said to me over the years, you know, that's fine, but the property that I've got, a lease hold, I can't do it. Well, no. There are some leases that will stop you from running serviced accommodation units, but not all. I would say the majority of leases, and I've seen lots, I'm not going to say thousands but it's certainly hundreds that students have brought to me, we've read through them together, and it's entirely permissible.

Now, for any doubt on that, obviously you can get a lawyer's opinion or whatever. Rather than spend hundreds or thousands on lawyers, we can actually help you with the basics of that. Now, it is true that some leases in some circumstances will stop you doing serviced accommodation. I get that. Obviously if it's a free hold and there is no lease, well it can't possibly be an issue, but even if it is a lease that prohibits it, you can always change that with the agreement of the free holder. The majority of leases will allow serviced accommodation in my experience.

So let's just recap all these compliance myths. My mortgage is going to stop me doing serviced accommodation. Well, it might not, but even if it does, you can get a different one. I can't get planning permission. You probably won't need it, but even if you do you can get planning permission as long as you know what you're doing. I've got a lease hold flat so I can't do it. Not true. Your lease might stop you doing it, it might well not. Please don't assume. Assumption is the mother of all ... I'm going to use the polite version, mess ups. Please don't assume. Please get yourself educated such that you know. The application of knowledge is what creates wealth.

Myth 5 – Rent to Rent is illegal

Okay, and the final myth that I'm going to bust right here and right now is that rent to rent is illegal. The amount of times I've been told rent to rent is illegal, you can't just take a property and start using it as serviced accommodation. You can't pull the wool over the landlord's eyes. I'm not, absolutely not. Everybody that's involved, whether it's direct to landlord, whether it's a letting agent, whether it's a developer, however you get in this property that you're going to potentially rent on a longer term basis. You could, for instance, do that as a lease.

You could take a three, five or ten year commercial lease on a property. I'm not saying you should, I'm just saying you could, and you could rent it out by the night. If the Hilton Hotel Group takes a 25 year lease on hotel, and then lets out the rooms by the night, you're not saying that's illegal. But if that's not rent to rent, what is it? They're renting it for 25 years and they're renting it out by the room by the night during that time.

Almost anything can be done illegally, but rent to rent as a concept is not illegal. It needs to be done properly. What I would encourage is full disclosure. Make sure everybody knows what you're going to do. Make sure you get it in writing, that it's permissible to advertise it on Airbnb, booking.com and all the rest. If for any reason that landlord fails to perform, make sure you've got consequential losses in there because if they're going to steal your profits because they've messed up and they can't make their property available to you, that's their fault. That's on them.

So, I'll give you a few little tips. Do it through a Limited company. Make sure you've got no personal liability and make sure you get the correct legal advice. Now, we of course have got all the legal forms, all the templates, all the agreements that you'd ever need, and we're very happy to share those with people that we educate and people that become part of the family.

So, just to recap over the main myths that I hear as I talk to people about serviced accommodation. I don't have any property experience, I've never had a mortgage, well we've been through that. I've talked about Gordy and many other people like Gordy that have come, they've worked with us, and within a very short space of time, within weeks, they control properties and they're making thousands of pounds a month from serviced accommodation. That can be you.

I don't have enough money. Well, I've just shown you in this blog, in this post, an example. Okay, it's a bit of an extreme example of a block of 102 units in Birmingham with Ritchie McGuire that he's controlling and getting really decent money from. He didn't build them. He hasn't paid to furnish them. He hasn't paid a penny. He's getting paid a percentage, he's like a serviced accommodation letting agent, and there's many other ways that you can gain huge amounts of profit in property as well. I'd love to work with you on that.

Market is saturated. Really? Show me where. Do the research and show me where. Compliance issues, how do I get away with? You don't. You make sure you're fully compliant with mortgages, planning permission, lease hold issues, data protection, fire risk assessments and all the rest. They're not hard, you just need to know how. Rent to rent is illegal. No, it isn't. Anything can be done illegally, but rent to rent as a fundamental concept is not illegal, and I gave you the example of a hotel taking a long term lease and then letting the rooms out by the night. How different, fundamentally, is that to what we want to do with serviced accommodation?

Hope you've enjoyed this and I look forward to working with you. Please feel free to contact Touchstone Education with any queries or questions you've got as a result of this post, or in fact why don't you just stick them in the thread here and we can action them right there.

Next step if you want to learn more click here, register your interest - https://www.touchstoneeducation.co.uk/events/sa-discovery-day

We'll get right back to you with the next stage of your serviced accommodation journey. 

Thanks a lot for reading and I hope you enjoyed these 5 myths, see you soon! 

Paul

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5 Rookie Serviced Accommodation Mistakes

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