5 Ways to Lower Risk When Investing in Serviced Accommodation
Every investment will carry some level of risk, but by putting in these five measures, you will be able to considerably lower your risk when starting a serviced accommodation business.
We’ve just taken a serviced apartment unit a new area where there are hardly any serviced apartments or hotels for that matter but I have good feeling it will work.
We’ve done our research - but like any investment, you cant ever be 100% sure if it will work or not.
So to compensate, I try to mitigate my risk as much as possible, so if it doesn't work, I cant get out without losing money (or much money).
Here are some ways to mitigate your risk when taking on serviced apartments:
1. Make you have a 6 months break clause. If the apartment doesn't work as SA, you need to be able to get out asap.
2. Make sure the property works as a single let. Worst comes to worst, you can let it out as a single let for the 5/6 months and then exit without having lost monthly cash flow.
3. Keep your sunk costs to a minimum: these are your furniture, agency, sourcing costs - money you won't get back once you give the apartment back. If you keep this to a minimum, you will lose less money if you have to exit early.
4. Consider getting 2 bedroom flats (if you do flats) as opposed to studios and 1 beds as you can get a better margin in terms of the difference between rent and nightly rate.
5. List the unit for marketing as early as possible. Even before you furnish it if possible so you can reduce the number of days the property is left empty once you've got the keys.
Hope that helps!