Rent to serviced accommodation: why we don't do it, and what to do instead
Most landlords hear rent to serviced accommodation as a tenant who pays on time for three years. In reality it's a business asking to run a short let out of your property, keep what it earns, and pay you a fixed rent for the use of it. That business only exists where the short let earns well above the rent, because the gap is its entire income.
We get asked to do it, and we don't. Here's why, and what to ask if someone offers it to you.
How the offer works
An operator signs a lease on your property, usually a company let rather than a normal tenancy, furnishes it, lists it on Airbnb, Booking.com and the rest, and hosts the guests. You're paid the agreed rent whether the house is booked or empty. The operator keeps everything above it. It's sold as rent to rent, as a fixed rent, as a company tenancy, and online as Airbnb arbitrage. Same shape every time: one rent to you, the rest to them.
Who keeps the upside
Take a four bed house on Caerleon Road in Newport that we manage. It took £40,310 in bookings in the last twelve months, 88% occupied, from contractor teams and families placed for work.
Under rent to serviced accommodation the owner would've been paid one rent every month, and the operator would've kept the difference between that rent and £40,310 after costs. Under management the owner keeps the bookings, the costs and our fee come out of them, and the rest is paid to the owner. Same house, same guests, same calendar. The only thing that changes is whose account the difference lands in.
That's the whole decision. A fixed rent is a floor. The floor is what you're sold, and the ceiling is what you're giving away, every month, for the length of the lease.
Where the risk sits
The pitch is that the operator carries the risk. Look at where it actually sits.
The mortgage is yours. Most buy to let mortgages need the lender's consent before the property is sublet or used for short lets, and a short let running in your property without that consent puts your loan in breach, not the operator's. The insurance is yours. A landlord policy written for a tenancy isn't written for paying guests, and a claim after a fire with six strangers in the house is your claim to have refused. The freeholder's consent, the council, the neighbours and the registration rules in Wales are yours as well.
The operator's risk is a lease it can walk away from. When the numbers stop working, a limited company gives notice or stops paying, and you're left with a furnished short let you didn't set up, a calendar of bookings you can't see, and reviews on an account you don't own.
So the risk sits with you either way. Under management it still sits with you, and so does the income, and the company doing the work has to earn its fee out of that income every month or it earns nothing.
What to ask an operator
If you're still considering it, ask these before anything is signed.
What would the property take in bookings over a year, and at what occupancy? If they won't say, they know, and the gap between that and the rent is the answer.
Will you provide written consent from my lender and my insurer, with your company named on it? Who holds the guests' money, and can I see the bookings? What happens to the furniture, the listing and the reviews when you leave? What's the notice period on both sides, and what happens to bookings already in the calendar? Can I see the accounts of the company signing the lease?
Then ask yourself why a business would commit to paying you a fixed rent unless it was confident of earning well above it.
What to do instead
Keep the upside and hire the work. Under management you own the listing, the reviews and the bookings. The company furnishes and photographs the property, lists it, prices every night, screens and hosts the guests and cleans between them, and its fee is a percentage of what the property earns, so a quiet January costs it too. Set-up costs are quoted and agreed upfront, so there's nothing recovered from you later. The mechanism is the one the operator would've used. The result is paid to you, and that's where 30 to 50% more income comes from, with no void periods because the calendar never has a tenancy ending in it.
What we don't do: we don't pay a fixed rent, and we don't take on a property where the lender or the freeholder hasn't agreed to short lets. Those are two of the questions above, asked of us.
The first step is the number. The estimate shows what your property would take in bookings and what would reach your account after every cost. Put an operator's offered rent next to it and the decision makes itself.
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