With rising taxes and regulatory pressures on buy-to-let properties, many landlords are considering alternative strategies to maximise their returns. Two popular options are moving into serviced accommodation or HMOs (Houses in Multiple Occupation). Both offer the potential for higher yields, but which one is right for you? Let’s weigh the pros and cons of each to help you decide.
Serviced Accommodation Benefits and Challenges
Pros:
1. Higher Income Potential Serviced accommodation often commands higher nightly rates compared to standard rentals, especially in desirable locations.
2. Flexibility Properties can be used personally during off-peak times, offering a dual benefit.
3. Short-Term Commitment Tenancies are short-term, making it easier to adjust pricing or pivot strategies based on market demand.
Cons:
1. Higher Running Costs Furnishing, cleaning, and maintaining serviced properties can be expensive. Marketing on platforms like Airbnb also comes with fees.
2. Inconsistent Income Occupancy rates can fluctuate seasonally, leading to potential gaps in income.
3. Regulations and Taxation Many councils are introducing stricter rules for short-term lets, making compliance more challenging.
HMOs Benefits and Challenges
Pros:
1. Steady Rental Income With multiple tenants, income is less affected by one vacant room.
2. Demand from Various Tenant Types HMOs appeal to students, professionals, and key workers, offering flexibility in tenant sourcing.
3. High Yield Potential Typically, HMOs deliver higher yields compared to traditional BTL properties.
Cons:
1. Regulation Compliance Licenses, safety standards, and planning permissions can add complexity and cost.
2. Higher Management Demand Multiple tenants require more hands-on management or the cost of hiring a letting agent.
3. Initial Conversion Costs Properties often need significant investment to meet HMO standards.
How to Decide between SA or HMO?
Your choice depends on several factors:
- Location: Is your property in an area with strong demand for short-term stays or shared housing?
- Time and Resources: Do you have the capacity to manage higher turnover or tenant issues?
- Financial Goals: Are you prioritising cash flow, long-term capital appreciation, or a mix of both?
The Most Overlooked Consideration to Maximise Returns
Regardless of whether you choose serviced accommodation, HMOs, or traditional BTL, high-quality finishes and thoughtful styling are essential. Well-presented properties not only attract more interest but also appeal to better-quality tenants or guests who are willing to pay a premium.
For serviced accommodation, striking décor and professional photography help your listing stand out and secure bookings. In HMOs, cohesive furnishings and a homely atmosphere can encourage tenants to treat the property respectfully and stay longer. Even in BTL, properties with a thoughtful interior are more likely to attract reliable renters and achieve stronger rental values.
Investing in the presentation of your property is an investment in its long-term success. Both serviced accommodation and HMOs offer viable alternatives to traditional BTL properties, but each comes with unique demands. By understanding the pros and cons, you can make an informed decision that aligns with your investment strategy.
If you’re considering upgrading your property to maximise returns, I’d love to help with styling solutions tailored to your needs.
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