Serviced Accommodation vs. HMO Which Is Best To Rent Your Property ?
Are you a property owner looking to maximise your rental income? Choosing the right type of rental for your property can make all the difference. In this article, we will discuss the pros and cons of two popular options: serviced accommodation and HMO.
Serviced accommodation: Also known as vacation rentals or short-term rentals, offers flexibility and high-profit potentials. With the rise of platforms like Airbnb, more and more guests are seeking unique and personalised accommodation.
HMO or House in Multiple Occupation: A type of rental property where unrelated tenants share common facilities such as a kitchen or bathroom. HMOs can be a great choice for long-term steady rental income, especially in areas with high demand from young professionals or students.
In this comprehensive guide, we will delve into the differences between serviced accommodation and HMO, covering factors such as:
Rental yields.
Occupancy rates.
Management requirements.
Legal considerations.
Tax advantages.
By the end, you'll have a better grasp of which option suits your property and goals.
What is serviced accommodation ?
Serviced accommodation, also known as vacation rentals or short-term rentals, refers to furnished properties that are rented out to guests for a short period of time, typically ranging from a few nights to a few weeks. These accommodations are designed to provide a more personalised and comfortable experience compared to traditional hotels, offering amenities such as fully equipped kitchens, living spaces, and additional bedrooms.
of online platforms like Airbnb, Vrbo, and HomeAway has greatly popularised the serviced accommodation market, making it easier for property owners to list and manage their properties. Guests can browse through a wide range of options, from cozy apartments to luxurious villas, and book their stay directly with the property owner or a property management company.
Benefits
Higher Yields - Much higher than with normal tenancies, people are paying to stay at your property per night vs per month.
No tenant rights - Guests work on a different platform to tenants, if you give a guest a bad experience, they have the power to give their feedback online making no need for guest rights to exist.
No eviction issues - Guests do not need to be evicted, even if you have a bad guest, they do not tend to stay longer then they said they would because they do not plan on living there, meaning no issues with tenant evictions.
Tax advantages - As you are running your property more as a business, their is much more tax advantages vs standard tenancies, talk to an accountant for more information on this.
Drawbacks
Inconsistent income - Your income is no guaranteed so some months you will make more then others.
Higher maintenance issues - Guests do tend to create more maintenance issues day to day, but much less ware and tear due to how often the property is cleaned and issues resolved.
More responsibility - Guests are more demanding then tenants and in most cases will want you to sort most issues for them creating more responsibility for the yield, you can always appoint a management company to assist with this like Stayful.
What is a House of Multiple Occupancy (HMO)?
A House in Multiple Occupation (HMO) is a type of rental property where multiple unrelated tenants share common facilities, such as:
Kitchen.
Bathroom.
Living area.
HMOs are typically popular among young professionals, students, and low-income individuals who seek affordable and shared living arrangements.
Each tenant has their own private bedroom or studio, but they share the common areas of the property. This arrangement can provide a more cost-effective living solution, especially in areas with high housing costs or limited availability of affordable housing.
Benefits
Consistent Income - Unless a tenant does not pay rent, your income is fixed and consistent making it much less stressful.
Less Maintenance - HMO’s are maintenance heavy, but not as much as serviced accommodation as you do not have to react to issues as quickly.
Little Regulation - Their is currently no regulation around serviced accommodation but that does not mean that will change in the future.
Drawbacks
Potential Tenant issues - Tenants have rights and in the UK it can be difficult to evict a troublesome tenant making HMO where tenant issues and turnover is high an issue.
Lower yield - As much as the income is consistent, it is not as high as with serviced accommodation.
More heavily regulated - HMO’s require a license and not every property can get them, making existing HMO’s in that area more valuable but also creating new ones much harder.
Less tax advantages - Income from tenants is very heavily taxed by HMRC.
Regulations Around Serviced Accommodation
In the UK currently their is no licensing needed to turn your property into a serviced accommodation property, however their are some things to consider:
Fire safety
You will need to apply proper fire safety measures including fire doors, smoke alarms and access in the event of fire.
Bins
Councils will not collect your bin if found to be used as a serviced accommodation property, so you will need commercial waste collection, you can find this online for as little as £50pm.
This is not to say regulation will not change in the future, as the government is already talking about implementing a licensing process and giving the local authority more control, but currently this is not the case.
Regulations Around HMO's
HMOs are subject to a more comprehensive set of regulations compared to traditional rental properties, as they involve the shared living arrangement of multiple unrelated tenants. These regulations are in place to ensure the safety, well-being, and rights of the tenants.
Getting a license
of the primary regulatory requirements for HMOs is the need to obtain a license from the local authority. The licensing process typically involves an inspection of the property to ensure it meets the necessary safety and habitability standards. Landlords must also comply with specific rules regarding the number of tenants, the provision of amenities, and the maintenance of the property.
Fire safety
addition to the licensing requirements, HMO landlords must adhere to specific fire safety regulations. This may include:
The installation of fire alarms.
The provision of fire extinguishers.
The implementation of emergency evacuation plans.
Fire Doors.
Failure to comply with these fire safety standards can result in significant fines and penalties.
Planning permission
If your property is more then 7 bedrooms through a project of conversion into a HMO, prior planning permission on top of licensing will be needed in order to make this happen, this process can take months before it is granted and maintaining the license requires an annual fee and routine inspections.
Which Is Better HMO or Serviced Accommodation ?
When it comes to deciding between serviced accommodation and HMO, there is no one-size-fits-all answer. The choice ultimately depends on the property owner's goals, investment strategy, and the specific market conditions in their area.
Our Opinion
We feel serviced accommodation is far superior and this is why:
Tax planning - much better when it comes to tax advantages.
Less tenant evictions & Rights - Even if you have troubled guests, they tend to leave after their stay.
Less Regulation - Making it easier to be creative.
Higher Yield - Even though the responsibility is greater, you can always appoint a serviced accommodation management company to deal with the issues.
If you are interested in getting started in serviced accommodation, we have training or consultancy available for you, alternatively if you have a property you would like managing you can get in touch here.