Which is Best Rent to Rent HMO or Rent 2 Rent SA Serviced Accommodation #R2Rshortandsweet #18

Which is Best Rent to Rent HMO or Rent 2 Rent SA Serviced Accommodation?

Read my top pros and cons to both here…

Hello everyone,

This is one of our rent to rent short and sweet blog and videos where we give you a lot of information and only a little time, so let’s get cracking with today’s question.

“I'm confused about whether to do HMO or to do Service Accommodation. I think SA is more profitable. Is that right?”

I'm going to talk about the pros and cons of rent to rent HMO versus rent to rent SA (service accommodation).

And I'm going to cover these main areas:

· Finding the properties

· Managing the properties

· Profiting from the properties

· Risks involved

Which way should you go?

Finding the Properties

With sourcing service accommodation, you can use a one bed flat, a two-bed flat - smaller properties are really good for it which makes it easier to find. There are more one bed and two bed flats around, and you can go to any letting agent and find a constant stream of them available.

So, for service accommodation it's easier to find the properties because there are more of those sorts of properties available.

With HMO it's harder to source those properties because there are fewer of them available. But we've got great ways for you to be able to source them efficiently through letters and with our agent scripts.

Managing the Properties

Now this is important because HMOs are easier to manage. With HMO you do all your work, you get your tenants in. Then once your tenants are in, they're there for six months at least, sometimes a lot longer.

This kind of management is much more straightforward than when you're finding new guests all the time. With SA, if you've got a booking for one night, two nights, three nights, you're constantly marketing for new business. So that makes the management of a service apartment much tougher.

It's like running a hotel or hospitality business. You've got to be good at marketing and you usually need to be on an online booking platform like booking.com and Airbnb.

You pay a good percentage of your income for the privilege of being on those platforms.

And at the beginning you won't be getting as many direct bookings which means you will need to be on those platforms.

You also have to be on top of your game with the operations of running your properties because each guest that comes to you will be able to rate you and those ratings are so important for you to get future guests.

When I say operations, I mean things like cleaning, making sure that the apartment is ready, being on hand when people are late, and then you've got all sorts of risks of parties and those sort of other issues which are more difficult to manage.

So, you've got to put a lot more time into it yourself or you've got to have a team. And again, by having a team, you've got to put your time into managing that team. So, it's a more time intensive strategy.

Profits

SA would typically be winning on the revenue side. The money coming in is going to be higher for service accommodation because people are paying by the night instead of by the month.

For example, a really nice large HMO room might be £450 a month and you could rent out the same room for between £30 -£40 a night. So, it’s a lot more money - at least £900 plus per month on a SA compared with £400/£450 a month on your HMO, but the bills are so much higher.

The running cost of a SA are crazy - as I mentioned before you've got the online booking percentage, which is around 15% for one of the platforms.
Then you've got your cleaning and any other stuff that you use for administering. So again, that's around 50% gone.

Often times when I've talked to people who are doing SA and we're comparing some of our HMOs, I'm much more profitable than the SA’s and the time that we put into those HMO’s is minimal compared to running the SA’s, which is almost like a full time job.

Risks

The risk involved is higher for a SA than it is for an HMO. The reason for that is what I was saying earlier, you must market for every guest and you've got to keep your marketing going all through the year.

Most areas it drops off in the winter than in the summer, so places are more difficult to fill - it will depend on your target market to an extent, but many find that it does drop off massively during the winter.

So, what looks like a hugely profitable property in the summer is actually a loss maker in the winter - overall averaging it out over the year, often means you're better off for the time involved managing an HMO.

I'm not saying don't do rent to rent SA, I'm just saying be aware upfront of what's involved.

To summarise, I think HMO is better if you've got a little amount of time and you want to get the most profit for the time you have available and you're prepared to spend a little bit longer sourcing the properties - not always, but sometimes it takes a bit longer to find your first HMO then it would to find your first SA.

SA can work well when you have more time to manage that operation, especially in the beginning when you're getting your system set up and you're aware that you're not necessarily going to make the money straight away and also that there's more risk involved.

So, you might want to go down the SA route because you find them easier to source and you've got the time to be able to manage that operation efficiently to make it work for you.

Either way you need to pick whichever works best for you. We love HMOs because we feel that for the time you put in, the profitability is better on the HMO side.

Please let me know if you have a question you would like me to answer in one of these rent to rent short and sweet videos.

See you all soon and bye for now.

Stephanie & Nicky

xx

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