Every 2 weeks you say... Part 2
Serviced accommodation again for now...
Finance
Being new to this whole SA thing, up until last week we have found it very difficult to obtain a remortgage for this property. Are we doing SA or holiday let? Are we appealing to travelers or contractors/ corporate clients? Can you get a projection of the expected occupancy rates from a local letting agent (who in our area, aren't really aware of the strategy)? One thing I would say is that a lot of brokers who believe they know what they are on about, often don't. We've had quotes for rates of anything between 3-8%, and various false promises along the way too. It's the wasted time that's the most annoying thing, as each new broker needs to know everything about you, including your regular score on the Bristol Stool Chart.
We've settled on one that comes in at around 3.4%, and is on a 2 year fix. We're thinking that in 2 years time the market will have either picked up slightly around us, or that there will be a greater choice of product & LTV levels available to us for our next remortgage, plus we're only tied in for 2 years should we completely fail and need to sell or pivot our strategy quickly.
The chosen mortgage is based on the normal vetting criteria of a standard BTL product, but allows short term lets too. This is great news, as we know the house will work as a BTL home if all else fails, it's just the returns won't be earth shattering, and we've over-specced the house for that market too.
Once it finally goes through though, this will enable us to remove some of our cash from the refurb and setting up of the SA property, pay off our debts, and roll it on into the next project. 75% of whatever it's valued at is what we've had to settle on, not the 80% we'd initially been told was easily available, so we're hoping the surveyor is kind to us. I'll get the usual before & after refurb document made up to give to them when we meet on the day, but you never know with these things. The document I just knock up on Google Slides, and it details what works we've carried out, what was wrong with the property before hand, etc. Always get lots of pictures of the project as you're refurbing, as you never know when they'll come in handy.
It's been a hard slog for us both this one though, and we can't wait until that mortgage money hits our accounts. I think we've used up pretty much all our available credit and funds in the purchase, refurb, fitting out & furnishing of the property. Loans, credit cards and taking rental income from our other BTL rental incomes has just about seen us through, but my monthly outgoings have certainly risen rapidly during this project. I don't feel like the rich carefree property investor that the media makes us all out to be.
Running Costs
Simon broke this one down for us recently, and although our initial rough estimates were around about the right level, it's still scary to think we need about 55% occupancy just to break even each month! I got my initial figures from Paul Smith's SA book "The Serviced Accommodation Success Manual" while conducting research into the sector. It's a great book for anyone getting into or operating within this strategy, if you haven't read it. I guess we'll just have to wait a little bit longer for the success part though.
We generally charge between £50-75 per night for the property, and have been as low as £32 for a 28 day booking, but that will give you an idea of how much money this is costing just to run in our "hands off" fashion. We don't have to currently factor tax into the equation yet either.
One great piece of advice we've learned from all this is that if you change the property onto business rates when you're ready to open, if it's your first SA unit in that company structure, you can get business rates relief. That's a great saving, as you now don't have to pay council tax or business rates!
Another is that the most of the costs involved in the purchase and refurb of the property are tax deductible under capital allowances. We need to look for a capital allowance surveyor to find out the exact details of what we can claim, but with the amount we've spent, we could be looking at a good few years of operating whilst paying no tax while that allowance is used up!
What we're up to now
Just to end, we're due to start our next project very soon, and have decided to try an HMO (House of Multiple Occupation) scheme this time. Nothing like throwing yourself in at the deep end! We've purchased the house already, via Modern Auction method (still not our favourite), and this is also the first property project we're doing via a Joint Venture (JV) with a private investor's money. We have to make this one work, as there's no way we can let them down. We're confident we have our sums right, but until we get the builder's prices back, and get the revaluation back from the mortgage, there's always a little worry in the back of the mind.
Cheers, Anthony.
