Ever since platforms like Airbnb came around, there has been a bit of confusion between serviced apartments and HMO’s. While some people say that they can make upwards of £200 a week for a £100 a week room while offering it as a serviced apartment, seasoned investors still believe HMOs hold the best long-term returns in the market.
Quite frankly speaking, comparing the two really comes down to your location, advertising and just how good the property actually is in reality. Serviced apartments are excellent earners if you can get the traffic. Which is the same case with HMOs. So it really just depends on what works for you as an investor. Instead of looking at hard, variable numbers, let us look at the pros and cons of both types of housing. Maybe that will help you decide which one to pick when you put Serviced Apartments vs. HMO’s.
Pros of HMOs:
Higher yields: HMOs typically bring in higher yield because you are essentially multiplying a single house by the number of rooms within it. Cashflow: With multiple renters bringing in money every week/month for as long as their lease holds, you definitely have higher cash flow with HMOs.
The problem is that the cost of running an HMO is often high as well when you consider repairs and tenant turnover. Resale: Established HMOs are easy to resale which means you have options and better market potential.
Cons of HMOs:
Management time: HMOs require more hands-on management that often costs money. Increased overheads: Insurance and tax all cost more when you are running an HMO. Licensing issues: HMOs require a specific license, the cost to which often fluctuates and depends on the issuing authority as well as the location of the property.
When it comes to serviced apartments, if you are part of a big platform that can bring you more guests each month then you can enjoy some of the following advantages.
Pros of serviced apartments:
- You will get a fixed rental income
- You will have a low vacancy rate
- Some tenants take on long term leases
- No letting fees
- No management fees
Some of the associated disadvantages include:
- Poor reviews that will affect your occupancy rate
- Some tenants require very short term leases
- No time for background checks, thus raising a bit of a security concern
When it comes down to the wire, it is really about what kind of investment presents you with the least risk while offering high returns. As mentioned by property investors like Rick Otton or David Lee, or Simon Zutshi – names you may be familiar with if you like attending property meetings – it boils down to the cash flow. A good investment is the investment that makes you money, and not you covering all kinds of costs just to keep your properties.
But if history is anything to go by, HMOs have been performing quite decently in the market and show great promise for the future. Depending on your location and the type of building you own, running an HMO may be a wise choice. This is only true if you have a lot of workers and student traffic. Serviced apartments, on the other hand, are best for those who live in places that enjoy a lot of business travellers who will find this kind of accommodation ideal for their lifestyle.