Exploring Serviced Apartment Lets & Traditional AST Buy-to-Let

Exploring Serviced Apartment Lets & Traditional AST Buy-to Let

In the realm of real estate investment, two popular options have emerged as viable choices for prospective property owners: Serviced Apartment Let and Traditional Assured Shorthold Tenancy (AST) Buy-to-Let. These two approaches offer distinct advantages and cater to diverse needs in the ever-evolving property market.

The Serviced Apartment Let model has gained considerable traction in recent years, primarily due to the booming short-term rental industry and the growing demand for flexible, hassle-free accommodations. A Serviced Apartment Let involves renting out fully furnished apartments on a short-term basis to travelers, business professionals, and tourists. The allure of this option lies in the convenience it offers both tenants and landlords alike. For tenants, the appeal lies in the ready-to-move-in nature of the apartments, complete with amenities and services akin to those found in hotels. On the other hand, landlords benefit from higher rental yields, as short-term rentals often command premium rates. Moreover, the flexibility of the model allows landlords to adjust pricing based on market demand, making it an attractive prospect for investors seeking to capitalize on tourism and business travel in prime locations. However, this lucrative potential is accompanied by the need for effective property management and marketing to maintain a steady stream of bookings, making it a dynamic and rewarding but demanding venture.

In contrast, the Traditional AST Buy-to-Let approach represents a more familiar and established form of property investment. With this model, landlords offer properties on long-term rental contracts, usually for a minimum of six months or longer, providing stability and consistency for both tenants and owners. The AST Buy-to-Let model is characterized by a more hands-on, landlord-driven management style, where investors are responsible for property maintenance and tenant relations. While rental yields may not be as high as those in the short-term Serviced Apartment Let market, this method appeals to investors seeking long-term, reliable returns and potential capital appreciation. Additionally, the AST Buy-to-Let model involves lower turnover and marketing costs compared to the transient nature of Serviced Apartment Let. As such, this approach has traditionally been considered a prudent choice for those looking to build a steady, resilient property portfolio in more stable and less tourism-dependent markets.

What is the Purchase Price?

The purchase price for both the Serviced Apartment Rental Model and the Assured Shorthold Tenancy (AST) model starts at £100k and can vary depending on the location. While the overall property prices are similar between the two rental models, there are some key differences to consider.

In the Serviced Apartment Rental Model, the purchase price is determined by the town or city where the property is located. This model offers fully furnished apartments on a short-term basis, catering to travelers and tourists looking for convenient, hotel-like accommodations. As a result, the purchase price tends to remain consistent across different areas since the appeal of this model lies in its potential for higher rental yields through short-term bookings.

On the other hand, the Assured Shorthold Tenancy (AST) model also starts at £100k but may present some variations in price due to location differences. Properties located on the outskirts of cities, which might not be as suitable for the Serviced Apartment Let model, can be more affordable in this approach. ASTs are known for providing stable and long-term rental options, attracting investors and landlords seeking reliable returns and consistent tenancies.

Ultimately, the choice between these two rental models will depend on an investor’s specific goals, risk tolerance, and target market. While the Serviced Apartment Rental Model offers the potential for higher short-term returns, it requires active management and marketing efforts. On the other hand, the AST model provides a more hands-on, long-term investment approach with lower turnover costs but may offer slightly lower rental yields. Understanding the dynamics of each model and the local property market will be crucial in making a well-informed investment decision.

What Are The Typical Annual Yields?

The typical annual yields for both the Serviced Apartment Rental Model and 

the Assured Shorthold Tenancy (AST) model varies significantly, offering investors 

distinct potential returns on their investment.

In the Serviced Apartment Rental Model, investors can expect an annual net 

return ranging from 8% to 10% of the purchasing price. These figures are 

based on properties located in UK central cities. The appeal of this model 

lies in its ability to generate higher yields due to the short-term nature of rentals, allowing landlords to charge premium rates for the convenience and amenities offered to travelers and business professionals.

Conversely, the Assured Shorthold Tenancy model provides a more conservative annual net return, typically ranging between 3.5% and 5% of the purchasing price. As with the Serviced Apartment Rental Model, these figures are based on properties situated in UK central cities. The AST model focuses on long-term tenancies, providing stability and consistent rental income. While the yields may be lower compared to short-term rentals, this approach attracts investors seeking reliable returns and less volatility in their investments.

The choice between these two models largely depends on an investor’s risk appetite, financial goals, and preferred management style. Those seeking higher short-term returns and are willing to actively manage their properties might find the Serviced Apartment Rental Model appealing. On the other hand, investors looking for steady, long-term income with less involvement in property management may lean towards the AST model. Understanding the potential annual yields for each model is crucial in making an informed decision and building a successful property investment portfolio.

What Financing Choices Are Available?

Serviced Apartment Rental Model:

For the Serviced Apartment Rental Model, investors have the option to secure financing with a Loan-to-Value (LTV) ratio of up to 75%. This means that they can borrow up to 75% of the property’s value, leaving them to cover the remaining percentage as a deposit or through other means.

Assured Shorthold Tenancy Model:

In the case of the Assured Shorthold Tenancy model, investors can access mortgages specifically designed for buy-to-let properties with an LTV ratio of up to 80%. This allows them to obtain a loan equivalent to 80% of the property’s value, leaving a smaller percentage to be financed through their own funds.

Conclusion

In conclusion, the comparison between Serviced Apartment Let and Traditional AST Buy-to-Let models underscore the diversity and dynamism of the real estate investment landscape. Each approach offers unique advantages and caters to different investor preferences, making them viable options in their own right.

The Serviced Apartment Let model entices investors with its potential for higher short-term rental yields and flexibility in adjusting prices based on market demand. The allure of ready-to-move-in apartments, akin to hotels, appeals to travelers and professionals seeking hassle-free accommodations. However, this model demands diligent property management and marketing efforts to sustain a steady stream of bookings.

On the other hand, the Traditional AST Buy-to-Let model provides stability and consistent long-term income, attracting investors who prioritize reliable returns and are willing to be more hands-on in property management. With lower turnover and marketing costs, this model can be an appealing choice for those seeking to build a resilient property portfolio in less tourism-dependent markets.

Ultimately, the decision between these two models hinges on an investor’s individual goals, risk tolerance, and preferred level of involvement in property management. As the property market continues to evolve, staying informed about industry trends and local market conditions will be paramount for making successful investment choices.

In the end, whether one chooses to venture into the thriving world of short-term, fully furnished rentals or opt for the stability of long-term tenancies, both Serviced Apartment Let and Traditional AST Buy-to-Let offer opportunities to capitalize on the lucrative real estate market and build a diversified and profitable investment portfolio. Whichever path an investor decides to tread, thorough research, careful planning, and a comprehensive understanding of the rental models will serve as valuable pillars in the journey to real estate investment success.