Short Term Lets, Furnished Holiday Lets and Serviced Accommodation, a guide

Online travel agents, or OTA's, have been around for some time now, with Booking.com having been founded in the Netherlands in 1996, and Airbnb joining in 2007, but since the 2020 pandemic, the UK has seen a huge rise in the appeal to investors of short term lets, or furnished holiday lets. If you are new to the concept of short-term lets as an investment, it involves renting your property on a short-term basis to individuals, couples, or groups of friends and families, the rent normally being calculated as a nightly rate, rather than monthly. Many businesses use short-term lets to put up employees now, rather than use hotels. This is because of the flexibility it provides the employee, from making their own meals, free to come and go at any time of day or night, location, parking, and from a 'home away from home' perspective.

As a strategy STLs provide, on average, a higher return, than standard BTLs, because you are offering each room as a nightly rate, rather than the whole property on a monthly rate, so with high occupancy rates you can make considerably more than with a long term rental. They offer flexibility and the opportunity to diversify your portfolio, mitigating risk. However they can be hard work, with more moving parts, cleaning, guest reviews, on-going maintenance issues.

Short-term lets V Long term tenants

For example, a two-bedroom apartment in Birmingham may be £1,200 pcm on the open market to rent to long-term tenants, BUT if you could let this out on a nightly rate of between £108 - £130 per night, then over a month, even at the lowest of £108 a night, a 30 day month will give you £3,240 GROSS income. Of course there are associated fees, etc, but this is a massive difference to the long-term option. Add to this nights and weekends where you can optimise your nightly rate, in our example, to £150 - £200 per night, which can happen depending on various circumstances, and suddenly your income increases massively.

Firstly let's explore the different types of short-term lets or serviced accommodation. First there is a standard short-term lets, short-term accommodation, or serviced accommodation, which is, typically, a property in a city centre, let out on a nightly rate. It will appeal to professionals, key workers, construction workers, or even tourists visiting the city.

The other sub section of stl's are the furnished holiday let properties or FHL's. Again, available to rent on a nightly rate, these will purely be focussed at the tourist market, and have less scope for variation in tenant type, due to location and style. Popular locations and examples of areas with lots of furnished holiday lets would be North Wales, the Lakes, Peak District, Devon, Cornwall, Bournemouth, amongst many others. Location is key to a successful holiday let, and short-term lets in general. For holiday lets, people either want to be close to local attractions and amenities, or some like to be away from everything, so it is important to know your tenant demographic before buying a property for STL/FHL. The closer the property is to shops and restaurants, can increase your rents dramatically. For a corporate let or a business, to appeal to a professional they need to be close to transport links, such as trains, motorways and airports.

Questions you need to ask, before letting out a property for either short term let, or a furnished holiday let would be:

• Is the property in a good location for tourists/holiday makers?

• Is the tourist season all year, or only a few months of the year?

• How many properties are for let in the same area?

• If the tourist season is only during a few months of the year, can you let it to other people, is there a good rental market?

• Does the property stand out from the competition?

Curb Appeal

Guests often choose their properties on sites like AirBNB and Booking.com so your marketing photos are incredibly important.

Maximising the potential for your short-term let property is also important, and you need to be able to cater to different sized groups, from individuals, and couples to larger groups. This can be done by adding zip-link beds, making it easy to convert double beds to two single beds. Another option is to provide sofa beds, gives the ability to accommodate more people to sleep in the property, giving you the potential for extra revenue on a nightly basis. Providing cots for small children will appeal to families, again giving you the opportunity to increase the rent. Allowing pets, again increasing your appeal to potential guests, also means you can charge extra. All simple ways to increase your bottom line.

Layout is key as well, properties with more than one bathroom will appeal to larger groups, and families, so no waiting in the morning. Open-plan living areas are popular with holidaymakers allowing for social interaction within the property, especially with furnished holiday lets if the weather forces them to stay in.

Insurance and Licensing

Remember to check insurance requirements, and also the legal requirements of renting your property as a short-term let. Some areas of the UK have restrictions and mandatory licensing. If you own an apartment, and its leasehold, some leases catergorically state you are NOT allowed to rent your property as an STL. You will also need holiday let insurance which is different to normal house insurance, covering guest-related injuries and potential claims. It is important to get a quote for this before considering renting your property.

Competition and Occupancy Rates

Do your research on your competition in the local area, analyzing market trends. Manchester city centre, as an example, has a huge amount of property available as short term accommodation, and so, depending on where your property is, you might find it is already saturated with similar properties, which will have a huge impact on your occupancy rates, and ability to make a profit, this is an investment and business after all.

Reviews

AirBNB, Booking.com, and other OTAs ask for guest reviews, these reviews are a vital key to your success. You should focus on guest satisfaction! This is important as it will play a major factor in increasing your occupancy rate. Many will check out the previous guest reviews before booking a property, myself included, and so you are aiming for 100%, or as close to as possible, from your guest satisfaction, the more negative reviews, you will find your occupancy rates declining. A good tip here is to look at the property through the eyes of your target tenant and be hypercritical, would you be happy booking your property? and if you had booked and arrived would you be happy with the accommodation and facilities provided? Is it value for money? If not, then don’t rent it out until you are satisfied your guests will be happy.

ADR

What is the ADR? This stands for Average Daily Rate. All STL management companies will use different metrics and information to calculate the ADR, which will also include additional fees such as cleaning charges. Many things can affect your ADR up or down, seasonality, location, property type, size, direct competition, and local events. For example if you are in the centre of a city, close to a stadium, where there is a concert taking place, it is likely you can maximise your nightly rate as people book accommodation for the concert, as you get closer to the date of the concert, and people struggle to find accommodation nearby, this is when your rate can increase dramatically, BUT, with this type of scenario, it is a balancing act, you don't want to price yourself out of the market, and find yourself empty, but you also don't want to sell yourself too cheap, missing out on extra reveue.

You can improve your ADR by ensuring your advertising details are optimised, good quality pictures, and lots of them, so guests have no doubt as to what they are booking. Maybe add artwork, quirky furniture, hot tubs, games, coffee making facilities. It is important though to understand your target market. If your property is in a colder setting for example, the Scottish Highlands, Lake District etc, then a hot tub might be appealing, but in a city location where you may be overlooked, the hot tub might not be used as much. Not only should you be in control of your ADR, and maximising it, you should know what your occupancy rate is.

Occupancy Rate

Occupancy rate is the percentage of time your property is rented compared to the time it is available for bookings. So for example, if your property is available all year, 365 days, for bookings, and over 12 months it is occupied for 250 of those 365 days, then you are running at 68% occupancy rate - 250/365*100

You should have acheiveable expectations and predictions of both your ADR and occupancy rates, every night that goes by ‘unbooked’ and empty cannot be booked again, unlike a physical product, that can be purchased tomorrow if it doesn't sell today. The longer your property remains empty correlates directly to a tangible loss of income.

Even if your property is managed by an agent it is important to remember you are still the owner, and the investor and it is YOUR income that will be affected if the property is empty so you have every right to find out the occupancy rates and ADR, keep a check on these important metrics.

Whether you are managing your STL/FHL or it is managed by an agent, try to find ways to increase direct bookings. A direct booking is when a guest books direct with you, or via your website, rather than through an OTA such as Booking.com. This can help you avoid paying the fees which can be between 3% - 20%.

One argument against short-term lets is that there could be a large turnover of guests, which in turn will put more strain and wear and tear on your property, however, this is not true. Yes, you will have more turnover of guests staying in the property, BUT, as the property has to be cleaned after every stay, or during the stay, regularly, if they are in the property for a week or more, then the property will be cleaned much more regularly than a standard long term tenant. You will also find that whoever is cleaning the property will be able to keep a check on damages, and/or problems constantly, giving you the opportunity to put things right quicker. I spent 15 years in the letting industry and found many tenants would either forget to report problems, or just leave them, which would, in many cases, exacerbate the issue costing the landlord more in the long run.

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