Serviced Accommodation vs HMO

Experienced landlords and real estate investors have probably heard about HMOs and SA, but in the battle of Serviced Accommodation vs HMOs, what is better?  Both high-liquidity investments with high tenant turn-over, HMO and SA are very similar in many aspects and very different in others. This guide is a comparison between these two types of accommodations, written primarily for those interested in investing, diversifying their portfolio, or make a living out of their income.

What is HMO?

First of all, it’s essential to define each concept. An HMO property or House of Multiple Occupation is a type of property in which three or more unrelated people live, but do not form a single household. The HMO is considered the only residence of the people who live in it, or at least their primary residence.

If more than four people are living in the property in addition to the landlord, and it is constructed on three or more floors, the HMO property needs to be licensed.  However, licensing depends on your council – some councils have ‘’additional licensing’’ which can be mandatory as well. Therefore before starting your journey with HMO, get more information from your local council first as that is definetely a difference when looking at Serviced Accommodation vs HMOs (because councils often do not know about SA).

 Here are some situations in which people look for an HMO property:

• Full-time students for higher education living in the city they study in
• Seasonal workers (eg. when relocated town for work)
• Professional workers (eg. Starting a new job)
• Contractors
• Corporate clients 

Although an excellent investment for the long-term, HMO requires a high start-up cost and management. House in Multiple Occupancy or House of Multiple Occupation (HMO) is a type of property for both short and long-term rental, typically six months.

Configurations of an HMO can come in numerous forms, such as two couples living together (2 households) or three friends living together (3 households). A small HMO can go up to 6 tenants sharing facilities, while a large HMO is for seven or more tenants sharing facilities.

Some other characteristics specific to Houses of Multiple Occupation are:

• Three or more tenants
• Licensing required for four or more beds
• More than one household (single person or members of the same family living together)
• Shared facilities
• HMO legislation and compliance: Managers must understand legislations and family houses letting, as well as licensing or ASTs, and much more.

What is SA?

Serviced accommodation or SA is a type of fully furnished housing that comes with services similar to a hotel plus amenities and accommodation similar to a house. Designed to work as a home away from home, SA typically provides both short and long-term stay options.

Most guests look for a serviced apartment to escape the pricy hotel stays. Although most SA charges a per night fee similar to hotels, it usually ends up economically beneficial for two or more people. Here are some more characteristics of the SA: 

• They are often located within a residential building
• Offer both long and short stays
• 24-hour helpline access
• Weekly housekeeping services (or even more often if required)
• Fully equipped apartments, with complete kitchen
• A living area and at least one bathroom
• One or more separate bedrooms (a designated sleeping area in studio apartments)
• Wi-Fi and all bills included
• Amenities such as TV and the latest technology.

Serviced apartments are more similar to a hotel than a house because the guests’ stay is temporary, and they reside somewhere else – SA cannot be considered the primary or only residence of the guest. However, SA is not as expensive as a hotel, while it provides a similar level of comfort.

Generally, SA is characterised by a furnished apartment that can be offered for both short and long-term stays.

Differences and pros & cons

Although both can be used as short term accommodations for guests, HMO and SA have many differences. As we mentioned, SA resembles more a hotel than a house, while it’s the opposite for HMOs. The House of Multiple Occupation has a lower tenant turn-over, which means less work looking for new tenants. The serviced apartment is varied: it can be rented out for a whole month or months, or guests can choose to stay for only three nights, for instance.

Besides different management, strategies and paperwork, SA and HMOs work better in specific areas for specific guests.

Here are some main pros and cons for each of them:

Pros of Serviced Accommodation

Cons of Serviced Accommodation

Ease of entry: Practically, any place can be rented out as a SA. So, it can be a better choice for people just entering the industry.  Legislation: Unlike HMOs, SA is unregulated, which means that almost any property can be rented out as a corporate or holiday let. You can remove guests: The guest is not paying or are there issues arising? You can ask them to leave. Quick ROI. Although not a rule, SA is often a fantastic investment with high returns (but only if managed correctly). Depending on the location of the property, you’ll be able to charge £80 or even £100 per night. If you have a property in a high-demand area, your ROI will be even quicker. High market demand. SA is a growing industry, because now more than ever, people have been favouring the comfort and economy of SA over hotels. Even with the economic crisis, SA is still in high market demand. Key workers and people in quarantine need a place to stay. After the crisis, it will continue in demand because individuals will want to travel even more.

Higher risk on booking: Of course, being mostly used as a short-term stay, there is a high guest turnover. This means that SA is riskier if not appropriately managed, and you can have a loss.  Management: Everything is your (or your manager’s) responsibility – from bills to cleaning. So, if you don’t have the time to self-manage, the best thing to do is hiring a SA management company. Higher flow of tenants: more guests visiting your property than in HMO.

Pros of a HMO

Cons of a HMO

Lower risk on booking: If the tenant is staying for 6 months or more, it’s natural that you have lower risks on booking an HMO. However, there can still be vacancies.  Management: Of course, the property is still your responsibility, but the management of the MO is much easier than the SA. Cleaning is still your responsibility, but only of the communal areas. It is also essential to make regular inspections and see if the property is being taken care of. Reliable income: If you close a 6-month contract, you will have a steady income for 6 months, which is great! Unless the tenant does not pay, which is always a possibility. No weekends guests: With an HMO property, the guests stay for weeks or months, and not for a single weekend, as this is more common with SA properties. It can be a benefit for those who enjoy staying at their property on the weekends.

More tenants to manage: While in SA, depending on its size, you will have one to four people to manage, HMOs fit five, six, and even ten tenants, whom you’ll need to check and get to know over time.  Regulations and licenses: Which are many! First, setting up an HMO requires planning permission if the property wasn’t previously an HMO. Then, you will need licensing for the conversion. If it already is an HMO, you’ll have to pay inspection fees annually. Not to mention all the necessary amenities and fire safety precautions. If you want all benefits but does not have the time to deal with all regulations, a management company can help.  Tenants not paying: Yes, we said that HMO has the pro of constant cash flow. However, there is one matter dreaded by any landlord: tenants may not pay. Differently from SA, there is a high level of bureaucracy with HMO, which makes it hard to remove the guest/tenant. Higher start-up costs:  The HMO is usually a big place that requires a lot of furnishing (not to mention all the fees). For beginners, it may not be the best choice because of the higher start-up costs.

Area and location

The area is one of the most critical points to take into account. Choosing the best location for your investment will impact significantly in your bookings, pricing, and in the likelihood of good occupancy.

Another vital aspect to consider before starting either business is the area of your property. Although many people ignore it, the area is often the main factor that encourages someone to rent out any property. If the apartment or house is near a university, for example, the main public can be students who are moving in for some time (HMO). Therefore, the location and understanding your area are the keys to successful investment.

If the property is in a central area with many corporations, workers and their companies can be searching for short term options more cost-effective than hotels (SA). Touristic places also benefit primarily from short term options, since most guests will stay for a weekend or less than a week (SA).

The area is one of the most critical points to take into account. Choosing the best location for your investment will impact significantly in your bookings, pricing, and in the likelihood of good occupancy.

“Why?” You may ask. Think about the guest or tenant: why would they book your place? Yes, amenities, comfort, and price count a lot. But, first of all, they are booking a place to stay in a specific area and do certain things. They may be going on vacation, to work, to study, or to relax in another place for two days. 

So, to choose between SA or HMO, you’ll need to see the area you have on hand.

If the property is close to the town, airport, and industrial areas, it may be suitable for shorter stays, for people going to work or relax. Places with useful links to London or other larger cities, buses, train stations, and tourist attractions are also more suitable for this public. If you have a property in an area like this, SA may be the best choice.
HMO, on the other hand, is meant to be home (not home away from home). That’s why people renting an HMO will look for a friendly and safe neighbourhood, with shops and supermarkets nearby. Transportation is also vital, such as buses. Universities or workplaces too. 

The area you choose can be used in your advantage. Based on the location and the guest profile, you’ll be able to customize from the house decoration to the marketing approach.

So yes, the location is key. If you are not sure of the attractions of your area, check our guides:

• HMOs in Milton Keynes
• The HMO Market in Bedford
• The Role of Economic Growth For Corporate Lets in Bedford
• Short Term Rentals In Northampton
• Short Term Rentals in Bedford

And more!

If you’d like to find out more about local council plans and see how it may impact your investment, visit council websites:

• Luton Council
• Milton Keynes Council
• Bedford Council
• Stevenage Council
• Northampton Council 

No matter what you think is the best (HMO or SA), the best thing to do if you are inexperienced is call a management company and request advice. A good start is essential for the best outcome and profit.

Where would I make more money?

Both are great ways to make money, but there isn’t a single answer!

As with any other business, making money with SA and HMO will depend on many things: the area, property type, if the building is modern or not, market demand, infrastructure, and many others.

Not only the market and the industry scenario will make a difference: it also depends on what you want to achieve. What is your main goal with this property? There can be many:

1. Portfolio building
2. Quick ROI
3. Market recognition
4. Profits only

Would you like to self-manage, or would you want it to be managed by professionals? This question is also essential, because many people think they will profit more without a managing company, but end up losing money due to the lack of practice, experience, and market knowledge.

Also, do you think about short-term or long-term growth? A management company can help, especially in the long term – they are crucial in building relationships with industry partners and helping you grow over time. 

Who wins – Serviced Accommodation vs HMOs?

Yes, we discussed many relevant aspects about SA, HMO, the differences between both, and the pros and cons of each. But there is still a lot to learn since property investment and management is a subject with many variables.

The most important lesson is: there is no just one answer, whether Serviced Accommodation or HMO is better or not. It all depends on many factors, and you must consider what is essential to YOU before making any decisions. If you already have a property, probably one of the two will be the best due to the area and building. In this case, the best thing you can do is call someone with more experience and ask them about it.

Management companies are a great partner when it comes to dealing with property compliance, maintenance, and overall management. Give us a call if you want to know more about how we can help you and your business.