Exciting times
As you'll know from previous posts property management is now at the forefront of my priorities. Long term lettings has always been on the radar, but this year Daniel and I have taken the plunge and started offering short-term letting services also. A great additional string to the proverbial bow.
What have we done?
We had taken on a few apartments in E14 (I know, it's not south of the river, but needs must) in order to test them on a short-letting basis. With us being outside of that locale it was key for us to partner up with a reliable person with ample experience to be on call for the day-to-day things: cleaning, check-ins, check-outs, ejecting party revellers and so forth. Thankfully our network is vast and we found the right person for the job! Once we secured the properties the keys were handed over, the properties prepped and listed on the sites ready for bookings. We have been running them for 6 months now and have had an average occupancy rate of 85% and an ADR (average daily rate) of £140. Makes for great margins for sure!
How does it work?
Some landlords want their properties managed, some want to be more hands-on. When it comes to short-letting, it's VERY hands-on. As you can imagine, everything has to be picture perfect when guests arrive. Think high-class hotel. Towels folded up on the bed, teas and coffees provided, all that sort of thing. Unless you have the time and inclination to worry about laundry, cleaning, and restocking dishwasher tablets you will need a property manager that can do all of that. You can't have a full-time job as well as run a serviced apartment, that's for sure! We have offered the landlord of these properties a guaranteed rent - that is, we rented the property on a company let basis, with permission to allow short stay guests. That way the landlord is getting a guaranteed rent (insofar as that our company will pay the agreed rent regardless of whether we have guests or not) and we are free to make a profit on the short stay income, less of course expenses such as internet, heating, electric, gas, and management fees.
How much?
We agreed to rent the properties on a three year term, hence giving us ample time to recoup our investment of time (sourcing the property), outlay of furniture, initial void (well, there wasn't really any as we agreed we could market them before getting the keys), and so forth. We had to pay the landlord a normal deposit as if we were a tenant, so initially we paid a 6 week deposit, a month advance plus some furniture bits. All in all it was £10,000 or thereabouts for 2 apartments. The breakdown is roughly as follows on a monthly basis:
£3575 - average income thus far
- Less
£1850 - rent
£275 - bills (elec/gas/water/internet/council tax)
£1050 - Management fees including web costs (30% oif gross)
--------
£400
So as you can see, over the last 5 months we've made a great return, and we are projected to make approximately £5000 per annum over the 3 year term. £15,000, plus the £5000 in deposit monies returned means that we'll have turned a £10,000 outlay into £20,000 in 3 years' time.
This sounds too good to be true!
It is, it's definitely something that comes with risks - let's talk about a few:
Parties, drugs and rock and roll - it's no surprise that short term letting has a few party people around that just want a plush pad to trash for a good houseparty. Thankfully our management systems are able to catch these out, eject them, and where possible relist the property for immediate occupation (hence getting double income for some nights).
Credit card fraud - again, rife in the industry. people will book with either genuine or stolen card details and charge it back later or the charge gets reversed due to fraud. Thankfully our systems have prevented any fraudulent bookings from taking place at all!
Damage - comes with the territory. You can expect a lot more wear and tear on walls because of suitcases and bags being dragged in and out of the flat, so the odd paint job will be required.
Planning permission - it is a known fact that some councils will require a change of planning use for serviced apartments to C1 if there are more than 90 days' holiday stays per annum. Thankfully for us this is not a well-enforced rule, if it is enforced at all. To mitigate risk however we do offer the properties to a varied clientele in order not to exceed the 90 day annual limit. Where do these bookings come from? Well, quite simply we have links to companies who require longer stays for their staff and therefore the properties can be let on a company let basis to them for a short period of time. This is then not a holiday stay and the 90 day counter stops ticking; problem solved.
Going further
Having now tested the model we have moved on to joint ventures with investors who would like to invest in property but in a hands-off kind of way. Daniel and I source the properties, we arrange for them to be furnished, prepared and photographed for listing and the investor has to put in the initial funds for the setup. The profits are then split between the parties. If you are interested in discussing the model further then please get in touch via email.
