Grow your serviced accommodation business. Keep hold of your cash and spread the cost of refurbishing your Serviced Accommodation.

1. Cash is King but why not to use someone else’s money instead and grow Grow your serviced accommodation business.

As the saying goes, “Cash is King”. If your serviced accommodation business runs out of cash you can’t pay your costs , wages or bills and can’t grow youe services business accomodation, it won’t be long before you have to stop trading. When it comes to buying the goods and equipment your business needs to operate. some people still work under the policy of “if you can’t afford it, don’t buy it”, which is one way of doing things.

Another school of thought is this – why would you spend your cash reserves on refurbishing your property, when :

a)the goods depreciate rapidly, meaning the value of your assets reduces the second you pay for them.

b) you can use someone else’s money instead. 

Yes you do have to pay interest on the money you borrow, but you will keep hold of your cash which you can use to invest in other parts of your business that are going to give you a bigger return. you will have a pot of valuable cash in case of any slow periods or for a rainy day.

Here’s how it works in practice and grow your serviced accommodation business – you could either spend £50k of your cash refurbishing a property paying for furniture, kitchen goods, carpets and soft furnishings; OR you could put the refurbishment on a 5 year finance agreement, such as a Lease, Hire Purchase which isn’t secured against the property, and use the £50k cash as a deposit to buy another property with, meaning you would then double your income.

How long would you have to wait for a second property by taking the profits from just having one? Having the ability to use a separate finance facility which is not linked to the property or its mortgage, allows you to free up the cash you would have spent fitting it out, otherwise.

2. Try Alternatives and grow your serviced accommodation business.

In the last 20 years, there has been a gradual rise in the “Alternative” finance market. You may see the occasional TV advert or Facebook post but in general most of the lenders behind this movement have chosen to go under the radar. They don’t advertise in the news, radio or on TV, and they don’t spend large amount marketing on social media on the internet. This is because they have a ready-made group of people to bring business to them – Brokers.

And so why would they spend money on advertising when they don’t need to? Brokers are not directly employed by the lenders – they don’t need to have an employment contract and don’t need to be paid a pension. More and more lenders have come into the finance market in recent times and their first port of call is to announce their arrival to the broker market as they realise the benefit a broker can bring to a transaction.

They can pre-screen everything, collect the right information and deal with the customer every step of the way, whilst the lender sits and waits for all the correct information to arrive on their desk so they can come to a decision on whether to lend or not, and pay out the cash to the relevant parties, if they have given an approval.

Since the financial crisis of 2008/9, we have seen the major High Street banks pull back from lending to Small to Medium Sized Businesses (SME’s) in the UK. In some cases they are paying Challenger Banks to take customers of their hands – perhaps they became too big? There was too much risk lending to all of these SME’s for low-value assets, and for unsecured loans.

In many cases, the High Street Banks are now taking a month to come back with an answer or initial feedback on a loan application before asking for more information and coming back in another few weeks with a decline or an acceptance with onerous conditions, which is basically the Bank saying it’s a decline but they’ll do the finance if you accept something crazy – it’s a tactic used to let businesses down gently without saying a direct “No”.

Quite often the acceptance conditions make the finance “approval” completely untenable. I know this through first-hand experience, as many of my customers have been through exactly that experience. And in the main, I have benefitted from the High Street Bank’s lack of appetite with these clients. They are happy lending against Cars and Machinery, which have a decent resale value, but anything outside of that is not given much of a chance.

In the Alternative finance market there a number of specialist lenders that will finance low-value assets. They are willing to take the risk as there is a large market out there for customers looking to finance furniture, IT equipment, software, and the entire costs of a refurbishment/ fit-outs of a business premises.

The focus moves away from the asset that’s being financed, to the strength of the customer lending the money and their ability to repay the loan. This means an established SME trading for 3 years or more can get funding at reasonable rates, not too distant from the banks rates, with a decision in roughly 1 working day. That’s a far cry from the month you wait with a bank. And what’s more is the broker doesn’t charge a fee to the Business borrowing the money – we take our fee from the Lender. So it’s a win-win-win for everyone. The lender gets the loan, the broker gets paid for sourcing the loan at the best rates possible, and more importantly, the business / customer gets the finance for the refurbishment and keeps hold of its cash.

This offering can also be extended to Start-Up companies and let them grow their serviced accommodation business – those business trading between 0 and 3 year. Once you have filed 2 sets of Annual Accounts at Companies House it is generally considered that you are no longer a start-up business, in the eyes of the underwriters at least. There are however some differences – interest rates for start-ups are higher because of the perceived extra risk to lend to them – there is no trading history and therefore no historic data to base a finance decision on.

On top of this, the lenders will always ask for Personal Guarantees from the Directors, and they will need to be home-owners, to show there is some wealth sat behind them. As mentioned before, the finance is not secured against a property so just because they want the Directors to be homeowners, there is no direct link between the refurbishment finance and the Director’s properties, on the Personal Guarantee. All it states is this – should the business not be able to make the finance payments for whatever reason, the Directors will cover them with their own wealth.

The process to get a decision on the finance is a straight forward one. At first we provide our clients with a quote that can have as many options as they want – Lease, Hire Purchase or Unsecured Loan; anything up to 5 years. The goods being financed can be anything you buy for your business. If you want to go ahead and grow your serviced accommodation business, we ask for some basic financial information – generally a full set of Annual Accounts and some up-to date trading figures for the current trading year, if available.

If it’s a new start business, we will want a business plan with financial projections and maybe some bank statements. We will then write our proposal our present it to the underwriters with the best interest rates – we will always go to the lender with the lowest rates, first. If we get a decline, we can go to another lender, if it’s approved we can then write the finance agreement for you to sign. Then we will get an invoice from the supplier of the refurbishment goods – these invoices will only be paid with your authority.

The day they are paid your monthly payments begin. If it’s an unsecured loan, the cash will go directly to your business account and you will pay the suppliers yourself – but remember Unsecured Loans will always require Personal Guarantees from the Directors; whereas Lease & Hire Purchase generally don’t. This will all come down to each individual case and the financial strength of your business, and the view of the Underwriters, but it’s not a pre-requisite with a HP or Lease, like it is with an Unsecured business loan. 

If you would like to discuss financing the refurbishment of your Serviced Accommodation, Property Developments, Hotels, Offices, Pub, Café, Restaurant or any other types of business, feel free to get in touch. We have a panel of over 70 lenders to finance all types of equipment, and another panel of over 130 lenders for all forms of Property Finance.

I hope to hear from you soon

Best regards,

Billy Walker

Managing Director

Source Asset Finance Ltd

M: 07956 045421

T: 020 3816 0396

E: billy@sourcefinanceuk.com

W: www.sourcefinanceuk.com

This is a guest blog post for zeevou’s Blog.

7 Top Tips On Scaling A Serviced Accommodation Business

How To Grow Your R2R Serviced Accommodation Business

Scaling Your Serviced Accommodation Business is not an easy task. You may have successfully set up a handful of units, and are keen to replicate your success. Now what? Short of cash? Perhaps not, read on to find out how you can fast-track your growth.


How it all started

Scaling Your Serviced Accommodation BusinessA bit about me… My first encounter with property management was 2.5 years ago, when I attended the Serviced Accommodation Masterclass with Touchstone Education. Prior to that, I had no property experience, and worked as a sales manager for a large corporation. Moreover, I was fed up, couldn’t see a future in it and felt like a slave to the job, which a lot of people reading this will probably relate too. This is why I invested in my education.

Where I am today

Forward the clock 2.5 years, and I have 37 Serviced Accommodation units, with a mix of Rent 2 Rent, managed properties and some properties that I own. Repeatedly, the biggest question people always ask is “how did you scale so fast?” I answer that it’s down to the strategies and techniques I use to keep my running costs and set up costs low. Also, by focusing on a certain market, I also minimise operational costs. Finally, this means I am maximising my profits, which in turn allows me to invest in more serviced accommodation units.

I’m always clear when I train people: I’m not an all-round property expert, but I am an expert in this particular strategy. I 100% believe it’s the best technique to generate a quick cash flow. Many people want to use property management to get out of their day job, or to increase their cash turnaround. When buying properties, this can take time and the gains from a buy to let property may only be a couple of hundred pounds per month, so you would need quite a few of them to make it worthwhile. Rent 2 Rent and serviced apartments, on the other hand, allow you to get your operation up and running and start earning money fast. This will allow you to scale back other activities and focus on the things that really matter to you.

Fast-Track Scaling Your Serviced Accommodation Business

1. Never Pay A Deposit

This is a deal breaker for me. If a landlord makes me pay a deposit, I will walk away from the deal. What sense as a business owner does it make to have money tied up, doing nothing? None! You have to remember, you’re the one offering the great deal to the landlords, not the other way around. You need to know how to position it correctly to them. Once you do that, you will never pay a deposit again. Not paying deposit means that your initial outlay cost is cheaper, and you can therefore use the deposit money to set up your next unit.


2. Never Pay Rent Upfront

In fact, you should always get 1-2 months’ rent free, again, if you know how to position it correctly. My goal is to always have money coming from bookings before I have to pay the landlord anything. You need to get into the mind-set that you have this amazing offer for the landlord. Once you know how to sell the deal, it’s easy to get 1-2 months’ rent free. When you have saved yourself 1-2 months’ rent, and also saved on the deposit, you can use this cash to set up further units.


3. Don’t Pay Upfront for Furniture

Without a doubt, this is the most expensive part of setting up a serviced apartment. But there are multiple ways you can do it in order to be more cost effective:

a) Lease Furniture

There are many companies out there who will let you lease furniture. This means you pay them a monthly fee instead of paying £5-7K upfront to furnish your property. Again, this helps with the cash flow and avoids high initial costs, leaving you with further money to invest in more units.

b) Furnished Apartments

There are lots of apartments out there that are already furnished, and in a pretty much in turn-key condition for use as a Serviced Apartment. You could add a few soft furnishings to put your own design stamp on them. I have multiple apartments which came fully furnished, and have only spent £200-300 on soft furnishings before taking them live for bookings.

4. Correct Power Team

It is VITAL if you want to scale your business to have a solid power team around you. Having the correct cleaners, maintenance, and guest relations teams means that you will not get dragged in to the nitty gritty of operations. If you are both running your business and worrying about cleaning and maintenance, you will not be able to focus on scaling up.


5. Managing Director/Operations Manager

I hired an operations manager when I got to 4 properties. I quickly realised that I was terrible at systems, organisation and did not enjoy that side of the business. What I was good at was bringing on new properties, doing deals with landlords and constantly sourcing new business opportunities. As I had zero concerns about the operations side of the business thereafter, I was able to focus on growth and scaling the business.


6. Bookings

You may be able to scale your Serviced Accommodation business and build up an impressive portfolio of serviced apartments, but the bottom line is that if they are not full, you will not generate a profit from them. You need to make sure you are setting up apartments in the correct areas, where you know there is a demand for your target market. Do not go mad and set up properties all over the place, then run them half empty. Start in one area, systematise operations, fill up your units and duplicate your success elsewhere.


7. Focus On Direct Bookings

Running a Rent 2 Rent Serviced Apartment business means you need to watch your margins. Paying 15% to Booking.com is a hefty chunk, and if you service the apartments every 2-3 days your operations costs are going to be high. I usebooking.com as a lead generator, but always try to convert the current guests in the apartment to a direct booking so that I don’t have to pay a 15% commission to online travel agents. I only focus on the contractor market, where most of my bookings will stay from anywhere between 3-18 months, with no booking fees and 1-2 cleans per week. This keeps operation costs low, which maximises my profit.


I hope these tips help. If you want to connect please do so on the following:

Scale Your R2R SA BusinessGrow Your Hospitality Business

Scaling Your Serviced Accommodation Business with Gordie Dutfield