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Don’t be a Dodo! Spotting trends helps capitalise on or defend against changes on the property horizon…so what’s trending now?
Are you a trend-spotter…what is catching your eye right now? Even if we do not seek to capitalise on emerging trends, we may need to defend against them just in case. Don’t be a Dodo and become extinct is the unsaid warning we can glean from looking out for trends in property investment. There are at least two emerging alternatives to BTL that are doing the rounds with many professional property people right now. They are serviced accommodation and property partnerships. One new and one apparently not-so new concept here, although the latter has re-emerged of late due to some environmental factors as you shall hear.
[spp-player]Resources mentioned
Serviced accommodation examples can be found in both booking.com and Airbnb
Today’s must do’s
Are you a trend-spotter…what is catching your eye right now? Even if we do not seek to capitalise on emerging trends, we may need to defend against them just in case; don’t be a Dodo and become extinct is the unsaid warning we can glean from looking out for trends in the property investment arena.
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Transcription of the show
Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.
We are still on our travels…back in Thailand now, having spent a few days in Bangkok earlier and now a bit of chill time on Phi Phi island before what could be quite a mad time in Phucket right at the end of the trip. In fact, I am recording this week’s show a lot earlier than usual just in case I have an experience akin to that in the Hangover movie that might prevent me from being able to speak or something like that. All being well that won’t happen though, so I expect to have another episode with again in a week’s time.
Right now though, I wanted to share a couple of property strategies that are trending right now, setting the context as to why that is the case as I do. Let’s get on with the discussion then straight away.
Property Chatter
OK, so as I was thinking about what I would share with you this week, a couple of property strategies are trending at the moment and so I thought I would share a little bit about these. There are at least two emerging alternatives to BTL that are doing the rounds with many of the professional property people right now. They are serviced accommodation and property partnerships. One new and one apparently not-so new concept there, although the latter has re-emerged of late due to some environmental factors as you shall hear.
Serviced accommodation
Starting with serviced accommodation then, so what is it?
- Short-term furnished room / property rental by the day / week / month
- Often comes with extra services such as cleaning & laundry but could extend to catering, transfers, excursions, etc.
- Not let on an AST as not BTL
- Class 1 business use for planning purposes
- Permissions required from insurers and lenders to operate this type of business
- Types of let: leisure: holiday and short-stay vacations, corporate: mid-term corporate lets, business: white collar & blue collar overnight accommodation, temporary accommodation: casual or short-term living say to get know a place, in-between properties / locations, etc.
- Business model: unit rental rates & occupancy levels dictate profitability, marketing and management are very different to BTL and whilst bear some resemblance to HMO has a much higher turnover rate
Here is an example
- 4-bed semi-detached property in Lancashire that I am currently working on
- Market value is c£180k
- Market rent as a single let is c£700 per month
This makes this a fairly uninspiring investment as a standard BTL, with a less than 5% gross yield but a slightly healthier ROI of just under 8% when using a mortgage.
However, contrast this with the potential returns if it is converted into serviced accommodation that can sleep up to 10 or even 12 people.
Assuming modest room rate of £99 per night, which compares favourably to the local hotels for a double or twin room, with only 40% occupancy this would gross over £1900 per month in rent. There are more costs involved in managing the property though, so the management charge is higher than you would expect to pay with a BTL or even an HMO.
However, even taking the higher costs into consideration, based on this level of booking activity, the gross yield jumps to just shy of 13% and the ROI a rather impressive 16%+. Add to this the prospect of increasing the occupancy rate and it gets even better. The expected rate of £179 and 50%+ occupancy does start to become quite attractive I have to say.
This is why serviced accommodation is being one of the most sought after new strategies at the moment! It can transform a fairly ordinary investment proposition into a rather inspiring one by adopting a different angle.
Property Partnerships
The second growth area that I wanted to talk a little about is one that has been around for a while, but is taking on even more prominence at the moment…property partnerships.
Partnering with others is not new and can come in several forms. Financial investment partnerships, joint ventures to combine skills & resources and outsourced management partnerships to utilise selected skillsets of other people are just some of the options available.
A partnership allows people to do more with less (or leverage) and to plug some of the gaps they may have in terms of one or more of the following capabilities:
- Finance & other capital assets – such as money to invest or even a property to utilise
- Skills, knowhow & systems – such as building trade knowledge, planning regulations, niche market awareness, short-term booking systems & management and so on
- Experience – just knowing the pitfalls and how to avoid or at least reduce them can be a great help
- Contacts – access to off-market opportunities, investor communities, an existing ‘power team’ of professionals and trades and such like
- Shared learning & accountability – often underrated but quite often undervalued as well; having someone to share the journey with can make it more interesting, fun and deepen the learning experience as well as giving the two heads being better than one approach to risk management 😉
Partnering with others allows us to scale bigger, to reach further or to access new projects that we could not necessarily do on our own. In fact, working in partnership has been a personal break through as a property investor. My progress has accelerated since getting my head around the concept that I can do far more with others than I could do on my own.
There is no fluke that these two particular approaches to property investing are trending right now. As we have discussed previously, the attractiveness of BTL has been a little bit watered down by some of the recent policy changes to stamp duty and mortgage interest relief. Both of these will have a negative effect, particularly, although not exclusively, on investors buying in their personal names, using mortgages and in a higher tax bracket.
So, as professional investors or as investors with a professional approach, we are all looking at ways to improve the situation. I talked about some of the ways we can do this a couple of episodes ago, when I discussed the so-called ‘Alice in Wonderland’ tax grab or Clause 24’s mortgage interest relief law change in the Finance Act 2015. At the heart of many of these points was an aim to improve overall profitability and investment returns.
With serviced accommodation, as you can see from my example, the potential returns are very good indeed. Equally, unlike other niche segments that also target higher yields, there is currently less regulation and less competition as well. That is why a number of early adopter property investors are beating a path to try their hand at the serviced accommodation model…myself included J
As regard to partnerships, many investors that previously would have put their money into BTL are realising that they can still achieve very good returns by collaborating with another investor that can gain access to higher return projects. These could include projects such as the aforementioned serviced accommodation model, but also commercial conversions, new build development, HMOs, value-added flip projects and so on.
Projects such as these all have the potential to deliver return on investment numbers well into double digits and so sharing that with a more experienced property investor or developer has a lot of merit. Not least of which, as it still allows investment into property, probably picking up some additional knowledge as we go. However, it also allows a more passive, armchair type of approach to property, which may particularly appeal to those with other commitments or who would find it difficult to access such projects due to geographical factors say.
Watch this space but I really do believe these two areas will spring even more into life from April when the Government policy changes start to kick in. I am sure there will be more emerging trends as we move forward. In fact, I would go as far as to say that the only constant is in fact change and so we must always have an eye on what trends are emerging, what social, legal and political changes are heading our way and also what market forces are at play at any given point in time.
Right now at least, it strikes me that so-called landlord bashing has become centre stage at this moment in time and so we need to adapt and change, be professional and also a bit smart about what we are planning to do next. Just as in warfare, guerrilla tactics or an underground resistance can help to bring about a victory for a seemingly weaker opponent.
I may well return to this subject later therefore, but for now at least, that should give you a bit of pointer into a couple of trends for you to do a little more digging yourself. By all means drop me a line podcast@thepropertyvoice.net if you want to chat about these ideas a little more.
I will be back next week with another soundbite episode, so I look forward to you joining me then…all being well!
You can always drop me a line, podcast@thepropertyvoice.net and the show notes as always can be found over at our website, www.thepropertyvoice.net
Meanwhile, as always, thank you for joining me on the show today and until next time on The Property Voice Podcast…it’s ciao ciao!
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