Different ways to analyser your rent to rent serviced accommodation deal?
The rent to rent model is becoming a favorite business model, especially for landlords and property managers who want to realize higher profits without actually owning the property. However, before running to any rent to rent serviced accommodation agreement one should do some due diligence to establish if this is a worthwhile deal. In this blog, we will be looking into some of the different approaches that can be used to evaluate a rent to rent serviced accommodation deal and help you make decisions that will be beneficial in the long run.
Different ways to analyser your rent to rent serviced accommodation deal?
1. Calculate the Initial Investment Costs
One of your first areas of concern in any rent to rent serviced accommodation deal should be the initial costs. These comprise all payments on deposits, furnishing, licensing, and marketing setups as well. You want to make sure that these capital outlays do not overshadow the anticipated gains to be earned from the deal.
Deposits and rent payments: Think through the rent that has to be paid in advance and the deposit that has to come out. This will put into proper perspective the total amount of finances that you will have to avail at the very beginning.
Furnishing and decor: For serviced accommodation to be operational, the furnishing has to be done therefore the budget for furniture, appliances, and decorative materials.
Licensing and compliance: Depending on the areas you will be operating from, you may require certain licenses which is especially true if you intend to run a short term let business. Such costs have to always be accounted for in the rent to rent serviced accommodation analysis.
2. Evaluate Potential Revenue
One very decisive factor in ascertaining the viability of your rent-to-rent serviced accommodation business is revenue estimation. You can do this by analyzing the property’s location, size, and the potential for short-term rental in the area.
Local Demand: Find out if there is a short-term rental in the region by looking at the history of operating costs for each property. Look into tourist attractions, business districts, or any other that can help in attracting guests to the place.
Average Daily Rate (ADR): Find out the Average Daily Rate of serviced accommodations in that specific region. Check on the rates of competitors on popular online platforms like Airbnb, Booking.com, Trip Advisor, etc. This would notify you in a more realistic way of the revenue per night that you will be receiving
Occupancy Rates: Occupancy rates are the basic most determining factors of success in a rent to rent serviced accommodation deal. Compute a rather conservative figure taking into account the present day’s market dynamics. A good rule of thumb is to estimate about 60 – 70% occupancy in your first year.
3. Run Cash Flow Projections
Cash flow projection is one of the crucial elements in a rent rent serviced accommodation investment deal analysis. The projection in this case is the monthly income and expenditure one is likely to incur. Knowing how much net cash you expect will enable you to know if the deal can turn around.
Occupancy: Once you have established occupancy rates and average daily rates (ADR), you may then assess your expected income every month.
Other Costs: These are costs that must be paid for utility, cleaning services, property management, insurance, and repair works.
Break Even Analysis: Here you look at the number of bookings needed in a month to break even. This will be helpful in determining if the rent to rent serviced accommodation deal is viable in the long term.
4. Consider Seasonality and Market Trends
The rental income from such short-term rentals may vary from time to time, depending on the time of year or the activities in the area. This is very important when considering a rent to rent serviced accommodation business stir.
Seasonal Demand: If such places are tourism oriented then, maybe during the busy seasons they record high monthly occupancy but the off-peak months are barely occupied. Make sure you have incorporated these inaccuracies in your revenue forecasts.
Local Events: In a calendar year, there might be periods of several local events or long festivals as well as conferences, which may lead to high bookings. The extent of such events positively impacts the demand when more reservations are needed.
5. Assess the Legal and Regulatory Environment
Before you go for a rent to rent serviced accommodation deal you should know what the laws say concerning short term rentals within that locality.
Short-Term Rental Regulations: There exists in all major urban centers regulations stating within which periods and without periods whether a property can be short-term rented. Where possible, check whether the property particularly the one you are about to acquire for investment, does not contravene this regulation, as it will attract penalties or legal problems.
Health and Safety Requirements: There are prerequisites when it comes to serviced accommodation in terms of general safety and health composition. You will have to put in fire alarms, emergency exits, and other emergency measures appropriate among other things within accommodating groups.
6. Analyze the Competition
Competitive assessment of the target area is another important consideration when carrying out a rent-to-rent serviced accommodation analysis. By conducting a competitor analysis, you’ll be able to learn about rates offered, the type of properties available, and their general occupancy patterns.
Talk about Comparative Analysis: Find and analyze properties like the ones you intend to operate out of your property and check out what they charge. This will assist you in working out how much to charge on your property for a night’s stay.
Competitive Advantages: Determine the differences between your and others’ operations or serviced accommodations. Any special features and services which help your serviced accommodation to position itself in the market need to be addressed.
7. Consider the Long-Term Sustainability
Finally, you need to determine the long term viability of the income you will be generating going forward from a rent serviced accommodation deal. Will the property still be able to get some bookings in the years to come? What are the threats that can hinder you from earning income?
Fair Market Economic Conditions: Demand for short term rentals may decrease due to struggles in the economy or changes in the tourism industry. When drafting your rent to rent serviced accommodation business model, ensure that it is flexible to allow you to deal with such issues.
Lease Property Depreciation. Since serviced apartments have regular guests, they are prone to wear and tear due to a higher turnover rate in guests. For this reason, plan on conducting repairs or doing an overhaul of the space to cater to the guests in the future.
Conclusion
When assessing a rent-to-rent serviced accommodation deal, it is important to conduct a careful analysis of cost, income opportunities, legal obligations, and tendencies of the market. The decision would ensure profitability in the long term by trying to weigh the initial investment, the volume of expected returns, cash flow, and the season’s effect.
In case you are a newcomer to rent to rent serviced accommodation working system or an experienced property manager, memory fall, analysis of such operations and their effectiveness will help you in all affectation of your return, follow these steps. It should be understood that the success formula involves analysis, research, and planning recurrent.
