The Property Unleashed Podcast

The Essential Guide to Due Diligence in Serviced Accommodation

• Mark Fitzgerald • Episode 324

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Due diligence makes or breaks your serviced accommodation business. Without proper analysis, you're simply gambling with your investment capital and hoping for the best.

Successful SA operators treat each property as its own business entity, requiring thorough market research and financial analysis. This means systematically tracking competitor properties and local hotels through detailed spreadsheets, monitoring price fluctuations month-by-month to understand seasonal variations and demand patterns. Unlike traditional rentals, serviced accommodation relies on dynamic pricing – rates that fluctuate dramatically based on local events, seasons, and demand cycles. A Premier Inn near Wembley Stadium might charge £100 per night normally but command £900-1000 during major events!

Understanding your cost structure is equally crucial. Fixed costs (mortgage/rent, insurance, utilities, maintenance fund) must be paid regardless of occupancy. Variable costs (cleaning, linen, sundries) fluctuate with guest turnover, while cost of sales (OTA commissions, booking systems) directly relate to securing bookings. The smartest operators establish a monthly maintenance pot (£100/property) that accumulates over time, creating a financial buffer against unexpected repairs.

The golden rule? Your break-even point should be 50% occupancy or less. Many novices accept break-even points of 65% or higher, severely limiting profit potential. For optimal performance, target 70-75% occupancy – consistently higher rates often indicate underpricing, while lower occupancy suggests overpricing or market issues.

Ready to build a six-figure SA business? Visit thepropertyunleashed.com for free resources including training masterclasses and deal analyzing spreadsheets. For personalized guidance, check out our Clarity Day workshops where we'll help you craft a bespoke property investment roadmap tailored to your goals and circumstances. Stop guessing and start investing with confidence – your profitable SA business awaits!

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Speaker 1:

How to conduct due diligence on serviced accommodation deals and make sure that they stack. Let's do it. Hello and welcome to the Property Unleashed with me, your host, mark Fitzgerald. It's great to have you joining me here today, so this is a very, very important subject for us to be discussing today. I think it'll help a lot of you out there in getting your numbers right and being able to stack a serviced accommodation deal. Now, of course, if you are listening to this episode, chances are you've clicked on this thumbnail because you're interested in this very subject Now.

Speaker 1:

Now you may have started doing serviced accommodation. Maybe you're not 100% sure you got the numbers right the first time you did this, or you might be looking at getting into serviced accommodation as well, again, making sure that you do the right things at the right times. So a lot of people look at serviced accommodation and want to get involved in it. Some will be looking to do rent to SA rent to rent serviced accommodation where you take on somebody else's property, you give them a guaranteed rent and you take the property on as your own. Some people will be looking at repurposing their existing properties. Some people might be looking at doing joint ventures and other people might be looking at buying to run it as a serviced accommodation. Now, fundamentally, we're not going to go in how to stack a deal. What we're going to go in is making sure that the property that you're looking at doing the deal on whether you're buying it, renting it, whatever is a good area is a good deal, is a good property to be doing this with, and I think that is where a lot of people fall over more than anything else. It's actually looking at demand in the area. It's working out the demand, the nightly rates, and it's also looking at their costs, their fixed costs, their variable costs and, of course, the cost of sales as well. And I'm going to explain to you in this episode exactly how and what all of that is, so that by the end of this, you've got a real, clear understanding of how to stack a deal, of how to know whether it's a good deal to be doing in your area, what sort of properties you think will fit with the clients that you have coming to stay in your properties. Because if you get these key areas right at the very, very beginning, then you will set yourself up for success, as I like to say, rather than just licking the finger, sticking it in the air and seeing which way the wind's blowing. Now we work very closely with our students on the ultimate serviced accommodation business builder training program to do just this, which is why I think this episode will help so many people.

Speaker 1:

And, of course, if you need any other further help or assistance, then go to my website, thepropertyunleashedcom. If you can't remember that, go to markfitzgeraldcom and then click on the Property Investor tab. But let's keep things simple here. Go to thepropertyinvestorcom, scroll downa little bit down the page. You'll see free resources. There are free training masterclasses for service to accommodation. There's also deal analysing spreadsheets you can download 100% free for me to help you get out there and do the right deals at the right time. Of course, if you do need any other further training, coaching and support, we offer that as well. Do feel free to reach out to us. Reach out to me on Facebook, linkedin, instagram. I have accounts with little blue ticks on, so you know you're going to be talking to the right people and, of course, if we can help and assist you, then we will in any way shape or form.

Speaker 1:

But let's get into this now, shall we? So, firstly, what I want everybody to be doing is getting used to the portals, getting used to using and looking at Airbnb, bookingcom, things like that. Okay, then what we're going to do is we're going to get ourselves a spreadsheet. You want to get some sort of whether it's a Google doc, whether it's a Microsoft, you know, excel spreadsheet. Get a spreadsheet opened up and start looking at properties that are very much the same as the property that either you're going to be renting or you're going to be taking on. Now, if you don't know exactly the property type that you're going to be taking on, try and have a look at maybe two beds upwards and see what the market's like for that.

Speaker 1:

Start looking at the different properties in the areas. Are they high end? Are they middle of the range? Are they looking like they're for more contractors, or are they trying to attract premium people with a premium product, so to speak? Premium people, I just mean people that are happy to spend more because it's in a highly sought after area. Start having a look at that.

Speaker 1:

And, of course, you'll already know this a lot of you but what I would then do and a lot of people don't do this is I would then Google in the area hotels near that area or in that area as well. And I would then start on the spreadsheet putting links to the hotels on the spreadsheet in the area. You know, ones that are real close to the area or in the area that you're going to be operating, and then have them marked by distance, so the closest ones you want at the top of the spreadsheet and then so on and so off going down. Do the same with your Airbnb, bookingcom listings for individual furnished accommodation, serviced accommodation providers as well. So you want to start looking at the trends Now.

Speaker 1:

I always start with the serviced accommodation units and I start looking on a month-on-month basis. How are they booked? Are they booked up? What are the prices? Because what you'll have with SA, which is completely different to either buy-to-lets or HMOs, your prices will never be set. Your prices, as we like to call it, dynamic pricing Okay, your pricing will be individual to your property and be individual to the time of the year and what's happening. Different seasons, different things happen, so just be very, very mindful and aware of that and what can be happening out there. Okay, and once you've done that, start making a list, by the sides of the links that you have, of the property types high end, middle of the range and such. These are the different prices for April. These are the different prices for May, june, july and so on and so on. Then what I want you to do is open another tab on that and start doing the same for the hotels that you've already got listed.

Speaker 1:

Start looking at their nightly rates. Okay, what's happening? Are the trends with the hotel matching the trends with the serviced accommodation providers in the area as well, so that everything's in line, because you'll watch with hotels? I mean, you probably had it in the past as well where you go to book a hotel room, it's maybe 150 quid, 200 pounds. At the time of booking you think, oh, get round to that. You get a bit nearer to the time and all of a sudden it's bumped up to 400 to 500 pounds. You know, I know a Premier Inn that is pretty much next door to Wembley Stadium Premium spot, premium spot. Now, on a normal night you can get a room there for about 100 quid, probably a bit less on some nights as well. But when there's something on at Wembley, it's about £900 to £1,000 per night, just while there's something on at Wembley. So it's their premium time. Now that's quite a drastic example, but you will have examples in your area. So you really want to get to know the months and the trends in your area. So you've got a really good detailed analysis of your prices, of your dynamic pricing, of what's going to be happening.

Speaker 1:

Don't just take a couple of nightly rates over a couple of months or even six months and think well, on average I can probably charge about £150 per night Brilliant stuff Only to find out that that's quite rare. You've basically attracted that because that's what you're looking for. What do I mean by that? Well, predominantly, when we want something to work and we want something to be a success, our mind because we're in a positive state and that's because we're looking for will search it out for us. It wants to prove us right in most cases. So if you're looking for negative pricing ranges ie cheap nights that's what you'll find more of. If you're looking for expensive nights, that's what you'll find more of because your mind's actively seeking those out. You've got to keep your mind balanced and focused and go with the facts. That's why I want a detailed report Now.

Speaker 1:

Most people won't take the time to do anything like this. Now, of course, you can use AirDNA Price Labs. All of these things have sort of done it for you, but maybe you haven't got the budget or maybe you just don't want to use those systems at the moment and pay for those. Those are paid prescriptions to use but are vital for a successful service accommodation business. But you can do this on your own and have a bit of fun of it. Why? Because rather than just relying on a system telling you what it forecasts and what it thinks, you'll be able to really start to be the property professional of your area.

Speaker 1:

I remember I always say we need to be the property professional of our area. We need to be consistent and persistent in doing the right things and we want to treat our property investing as a business. And if you stick to those three core fundamentals, you can't go far wrong. So once you've got this detailed analysis, you've got it all on a spreadsheet. You can really break down and each month then you could say on average for the month of May, on average I should get £120 per night. On average for June, I should get £160 per night. On average for June, I should get £160 per night. In July, maybe I get £200 per night. August, maybe I get £250, £300, because that's a peak time for us and then you start to see it tailor off.

Speaker 1:

Okay, so September that's interesting it's gone from £300 to £350. And I wasn't expecting that. I thought it might tailor off. Or it might tailor off, or you get to October then and all of a sudden it's down to 150 again and you're thinking, ok, then October, we go into November, november Maybe we're looking at 60 pound a night. It's like, wow, that's massive. But then in December it jumps back up to 200 because people are coming back to the area, because this is what the hotels and everything are telling us and the other serviced accommodation operators that have already been doing this. Let's tap into their knowledge and experience as well. Yeah, I hope that makes sense. So you want to be doing that and you want to be checking that on a regular basis as well, making sure that your figures are right.

Speaker 1:

Don't just do this once. Once you've got all the information in there. It's a lot easier because you can just click the tabs. That's what I'm saying. If you've got the links, the URLs to each of the hotels and to the listings, you can just click those tabs to easily go back and check your analysis to see what's going on. It can be very, very interesting, but it will give you your occupancy rates. It will give you your reoccurring revenue on the properties that you're looking at in the areas that you're looking at. You're looking at in the areas that you're looking at.

Speaker 1:

So the next thing that I want you to think about is your costs in your service accommodation business. Now, those costs will be in three different areas, in three different segments. One will be fixed, one will be a variable don't worry, I'm going to go through each of these and one will be cost of sales. Okay. So when we go through, the fixed cost is per property. So that is the costs that, no matter what happens, whether you have somebody stay there or not you are going to be paying. Your business will be paying out. The variables will be depends how busy your property is, okay. And, of course, cost of sales is how much is it costing me to get people to come and stay there? What is it costing me on the portals, maybe on advertising and things like that? But you really want to have a good understanding of these costs at the beginning as well, and you can start using spreadsheets. We have a free deal analyzing spreadsheet on the propertyunleashedcom website under the free tools and resources that you can go and help yourself to.

Speaker 1:

But fixed costs. So let's start on fixed costs. So one of the fixed costs that you'll always have in this if you own a property, you'll have a mortgage. Potentially, maybe you haven't. If it hasn't got a mortgage, you haven't got this as a fixed cost so great on you. Or if you're doing rent to rent, it's the rent that you pay the landlord. That is a fixed cost that gets paid each and every month, no matter what happens. Another one of those is your insurance. So that is another fixed cost. If you've got lease or services or anything to pay for in flats and stuff, that could be another fixed cost. Electric, gas, water that is all going to be normally at a fixed cost. Yes, it can be a bit variable, but you can get it locked in as well. That's what ideally you should be doing. You'll have Wi-Fi that's a fixed cost. Cancel tax Get yourself on a business rates if you can Save yourself a fortune there, but you will still have a fixed cost on business rates as well. Tv license Don't be cheap. Don't be cheap. Get that TV license in there, so you're not getting any of those red letters. So get your TV license. That's a fixed cost, furniture if it's leased, or anything that you've leased in the property or paying for over a fixed term. That has a cost and a monthly fee each and every month as well.

Speaker 1:

Now, one thing that a lot of people don't add and they stick it in the variables because they don't know how much it's going to cost them is maintenance. Now when I do deals and I look at my individual properties and I look at each of my properties as its own little entity, its own little business. Yes, I might have my management company or another management company managing them for me, but it is a little entity. I have a maintenance fixed cost because I don't like surprises. So I have on my rent essays. We have a maintenance cost of up to £100. So we'll pay up to £100 on anything that just needs sorting out each month. So what I do is out of my company, out of what we're making each month for each of my properties.

Speaker 1:

I have £100 going into a separate account, a separate business account or my bank account, and we call it a pot. So you can open pots, you can open sub-accounts and things I don't actually have a physical pot and draw the money out in pound coins and put it in the piggy bank or anything. This is a pot that is in the bank account. This happens automatically each and every month at a set time and goes in £100, goes into the maintenance pot. Now I like that as a fixed cost so that then if something does happen and I'm thinking to myself, we're a little strapped for cash at the moment, doesn't matter, just take it out of the maintenance pot that's been building up since we take this property on and we have this for numerous properties. So if, for argument's sake, I've got a new property and I've got a bit of maintenance while we're sorting out a few things, but I've had a property, you know, 12 months, 24 months, and that's had a maintenance pot that's been building up, I can always draw from that. It's not a problem.

Speaker 1:

See, the beauty of this is I'm holding on to a bit of capital, I'm letting it build up to a certain point and everybody can sort of build that pot up to whatever they like. I like to have a five grand pot for maintenance. It means I can sleep well at night and things can just get sorted and covered and I don't have to worry about it. So I let that build up, so have some sort of fixed cost. Now your maintenance fee might be up to a hundred pounds. Maybe you just want to, because you're at the beginning put 50 pounds into that pot each month. But just have something there. If you don't use it, it's still your money. So it's still your money, so it's all good. But it just means that you're balancing things out quite nicely and I have that under my fixed costs. So let's then in your business, once you've made a list of this. Now, if you're listening to this, maybe listen to this a couple of times. Maybe actually, what you also want to do is listen to this with a pen and paper and write down these costs so you don't get caught out in anything.

Speaker 1:

But the next stage that you're going to move into is your variable costs. Now these are the costs that you incur, subject to people staying in the properties. As in business, you would have fixed costs if you had a shop, but when somebody comes in and actually uses your facilities or buy something or something like that, you have your variable costs in that, because obviously you don't buy any more stock to put into your property if you don't sell anything. And likewise for your services. So your services, when you use your product, your SA unit, you're going to need some cleaning. So the three basics are cleaning linen and, of course, sundries. So your teas, your coffees, your toilet rolls, your kitchen roll, all of the sort of things that after a bit of time you'll need to replace or you'll need to refill those sorts of things. Okay now, sundries can be a whole host of different things depending on how you've kitted out your property.

Speaker 1:

But if you think about your own house, it's the sort of things that, like I say, tea, coffee, sugar, all the niceties that you want to have there. If you obviously have coffee machines and things, you'll have specific stuff for those dishwashers, salt tablets, all of those. You know washing machines If you're having those in there, are you going to have any? You know fabrics and softeners and things. Of course you might have a spare toothpaste toilet rolls Obviously you will have, or they could get messy. Those sorts of things are all in your variable cost. You don't actually know how much they're going to cost. You're going to buy those maybe in bulk and put them in as and when you need to. But they are variable costs. They're not a fixed cost that goes there.

Speaker 1:

So, realistically, if you're looking at cleaning, you can look at how much cleaners are going to cost you there, how much it's going to cost to change the linen, and look at sort of the nightly rates. Are people staying three nights? One night? Obviously, when you do one night, a lot of the time your profits go out the window because of your cleaning costs, because of your linen costs and things. So it makes it very, very difficult to actually get a profit. You have people staying for a week on a time where maybe they'll only have one cleaning cost at the end, one linen cost and things. Maybe you change some towels halfway through, I don't know, but it obviously means there's more profit for you. So you have your variable costs there as well.

Speaker 1:

And lastly, you want to be thinking about your cost of sales, which is your agency fees, your OTAs, your systems, your booking fees, all of those sorts of things. So if you're doing a proper analysis and you're looking at a 70% occupancy rate, you'll have agency fees, booking fees, you'll have all of those sorts of things that will be incorporated in your sheet. They'll be incorporated in your deal analyzer. If you haven't got a serviced accommodation one and you want one, then reach out to us. I'll gladly send you mine across. I have a nice basic one that can get you started and get you set up. But that's what you're going to be looking at. You're going to be looking at those types of costs and you're going to be looking at basically making sure that they're added as well, so that we don't have any surprises. Now, of course, on top of that, you will have tax yeah, you will. You might have VAT, ok.

Speaker 1:

So you need to be mindful and careful of those facts as well and take them into account for profits that you're making. Remember, we will all have our taxes to pay, vats, depending on the size of us and everything. So we want to make sure that we are accounting for those. Don't be caught out. Don't be one of those amateurs that's out there.

Speaker 1:

And when you're stacking the deal, obviously you want to be making sure that your break-even, if nothing else, is 50%. Please don't get caught in the trap that I see so many people doing, which is where they are stacking deals and they're saying to themselves as long as I get 65% break-even, I'm happy. Remember the higher the percentage of break-even, the less profit you're going to make. I'll say that again the higher percent of break-even out of 100%, the less profit you're going to make. I'll say that again the higher percent of break-even out of 100%, the less profit you're making. So 50% or below needs to be your break-even point or it's not worth doing the deal. So by having people stay in your property 50% or more, if it breaks even at 50%, then you know you're making profits after that If you've accounted for all of these costs as well, as much as you can. Obviously the variables will be something else that you'll just have to work out. But you can work that out by thinking about the percentage that you want.

Speaker 1:

A target occupancy rate for a good serviced accommodation is around the 70 to 75%. That is where we really want to be. If you're below that, then look at your prices. Maybe you are potentially a little bit too expensive. If you're above that, maybe you're a little bit too cheap. Some people say to me and they take great pride in saying I have about a 95% occupancy, that's great. But I bet if you put your prices up and actually got to a 75% occupancy. With the right prices, you would have less wear and tear and usage on your property and you would actually have more profit. So think about it as a business. Do the homework, be the property professional of your area and if you need any help or advice with this, we do. Offer, obviously, coaching and support and we have the ultimate service accommodation business builder training program that takes you through all of this step by step in a very easy manner, takes you from complete novice to building a six-figure serviced accommodation business. So have a little look for yourself Now.

Speaker 1:

I would like to say to you all, if you need a bit of clarity, you need a bit of help in your property investing. You're not 100% sure which direction you're going in? Then do check out the links in the show notes, if you are there, or check out the links on thepropertyunleashedcom, which is for basically, the clarity days that we are running and we're getting great success, really helping people build a roadmap for their own property investing journey. This is something that I'm hugely passionate about and excited about. Why? Because a lot of people have the knowledge, but they're just not getting the results that they want In these workshop days.

Speaker 1:

So this isn't a day that you just come and join us, sit there and listen to us, talk a load and teach you. We actually go and do use a workshop method to build your own property investing journey, exactly bespoken to you, so that when you leave there, you have a roadmap to follow and you can go out there and actually get the results that you want. So do check that out on thepropertyonleashcom and get out there and start property investing. There's links in the show notes for anything that you need help with. But listen, just put one foot in front of the other, actually start taking action, get yourself out there, make it happen, and I look forward to seeing your results. You take care and join me in the next episode and bye for now.