Rob: It's Rob from Property Investments UK. In today's video we're going to be looking
at serviced accommodation and how it works from a tenancy profile and also tenancy agreement,
and the structure that's in place between the letting agents and also the investor client.
When it comes to renting a property - let's say straight forward, vanilla buy-to-lets -
traditional rental processes in place. An AST (assured short-hold tenancy agreement)
is very often used between the tenants and the landlord. Now, when it comes to other types
of tenancy profiles, or other types of rental agreements - and we do a range of different
properties on this site. We look at social housing, we look at HMOs, we look at serviced
accommodation - and they all have slightly different structures. With service accommodation you
guys are obviously are the managing agent, you run all that side of things and you have
the corporate let, tenant profile in place, Paul. How do you structure the agreements, I guess
with you guys, the people that are going to be staying in the property, and then also
the investor, the client, the owner of the property?
Paul: So, someone buys a property through us, as a normal buy-to-let property, which
makes it easier all round for everybody else. When it comes to completion - during this phase
we'll have talked about what it... It's important to know that they've still got every option
available. The serviced model isn't an obligation. If you buy a property through us
you can go through a normal AST route. You can manage it yourself, you can
go to a local agent who specialise in that area, you get them to manage it, that is not
a problem. Rob: Because they're straight forward assets
aren't they? Straight forward rental properties, there's no -
Paul: It's a straight forward asset, yeah, it's yours to sell when you want, it's yours
to do whatever you want with. What we say to you is, we're offering you a third and
fourth option, ultimately. They both involve us looking after that property. There's two
different ones. We will give you an assured rental on that property and this is an agreement
between ourselves - Residential Estates - and the buyer, separate contracts from us to you.
We'll give you an assured rental on the property, which will be higher than what you would normally
get on, after a net AST. With that we'll pay all the bills, service charges, ground rents,
you name it, it's paid for you. And you just receive the next sum in your account.
Rob: On that assured, there's some letting agents, mainstream high street letting agents
and also some insurance products that give the assured rental guarantees. But very often
they are, it's a percentage of the rent, they might charge a fee if it's an insurance product.
Or, if it's a high street letting agent they'll say right, if your rent is say 100% of the
rental income, we'll take 25%, or whatever it might be after that.
Paul: Or we'll guarantee you 75% Rob: - And then we'll guarantee you that. So if local
market rent is that, then you're getting well below that level. Do you look at
the same structure, or is it slightly different? You pay better don't you?
Paul: As a company we do that. Our normal ASTs we do do that, like any other letting
agent. But on the corporate model it's slightly different. We will look at it and we will -
based on our occupancy rates - we will base it on what we assume we can quite easily give
them. For example, with Luton, 5%. Manchester, 6%. We're offering that 6% net which is higher
than what you would achieve on a normal AST, on any other guarantee. That 6% we will also
pay - over and above the 6% should I say - we will also pay the service charge, ground
rent, management etc. Everything comes out and whatever is left after that we make.
Rob: If you wanted a rental guarantee structure, you can do it, but you're not in a worse position
because you're doing it. You still get a very good return, don't you.
Paul: You're in a better position. And we'll also offer revenue share scheme, which is
slightly more complicated to go onto on video. But what that means it's just a simple share.
It goes on - I guess you'd call it a risk reward basis. Where we take 25%, you take 75%. You
look after the cost out of your 75%, which we will still manage for you. But that's where
you can achieve a significantly higher income. Rob: It's more like a traditional letting
structure where you have the rental income coming in the top, management in place they
take a management fee from it. And then if it's not tenanted unfortunately, there's obviously
there's no rental income coming in. But it's important that therefore you do work on the
right properties, right projects. You make sure your occupancy, you said before is 98%.
Paul: Yeah. And there are aspects in place. We do have a parachute payment in place
to make sure it's covered. But, we also have breaks in the contract as well, because we
do know - So, for example, if a client is going to be happy with 6% net in Manchester. That
is without doubt. If someone offered you that you'd probably bite their hand off on a normal
AST. But, if you see that you could have earned potentially 12% in that year - when we show
you how it's been occupied - then you can have a little bit of, why didn't I do it?
Rob: Yeah, should've gone for that one. Paul: Yeah. We have breaks in the contract
where we can say after six months okay, we'll have a look see what you're doing and then
switch if you like. We will also offer the parachute payments where, if we don't book
it for a certain percentage of the month then we will give you what that return would have
been. To make sure that your finances are covered, your service charges are covered,
etc. But I think it all goes back to the same thing. At the end of the day, if we're giving
a guarantee - on the guarantee aspect. If we're giving a guarantee in paying all the bills,
we're incredibly motivated to make sure that we're selecting the right apartments and selecting
the right clients. On a revenue share, if we're on a 25/75 split, the bigger your 75 split
is, the bigger our 25 split is. It's important for the client to know that we are literally
going into business with them. They don't have to be involved with our suppliers.
We'll have a separate contract with our suppliers. That's nothing to do with the investor. They
will be notified who they're using, but our contract is saying 'we commit
on the first or fifteenth of every month to giving you x pounds per month for your apartment,
simple as'. Or, we'll go on the revenue share scheme and that agreement between them and
us. Rob: Then the agreements you have in place
you'll have a management agreement, I guess, in place between you guys and the landlords
Paul: Yeah... All legally contractually binding.
Rob: I guess from an investor's viewpoint it doesn't need to necessarily be complicated.
If they want to go down the straight forward buy-to-let route - straight forward AST - they
can do, with the normal local tenant profile. But, the option to achieve a better rental
income on the property by going down the serviced accommodation route - there's a structure in
place that gives them a flexibility whether they want a guaranteed rent or they want something
else. Paul: I guess, best way of putting it - on
a normal buy-to-let you've got, there's only two doors, A and B. A is managing it yourself.
B is getting someone else to manage it for you, just on a standard AST. But now we give
... Rob: Other options.
Paul: ... a sort of golden, platinum door as well to offer you. Options are always good
for someone at the end of the day. Because we're letting agents as well. If, for any reason,
something didn't work, the corporate model didn't work, we would then make sure
we just get it on a normal AST. At least for a certain amount of time to make sure something
was coming in for you. We have got every option available to us, more importantly if the buyer,
when they're buying an apartment in a good location it's going to make money, as more
options. And they can be discussed any time, it's nothing to do with the reservation, the
exchange process, it's all to do with contact and saying right, okay we'll show you our
real time revenue and obviously share from other locations how it's working, you choose.
These are the benefits. Rob: Yeah, perfect. There are obviously tenancy
agreements in place or agreements in place with the managing agents. But unlike a traditional
straight forward tenancy if it were, a vanilla buy-to-let AST, there's other options. When
you buy an investment property like the one we're in today there are other options that
you can run that property on, rather than just a straight forward buy-to-let serviced
accommodation, as long as you have the right management contracts in place, can be a very
good option too as well. Hopefully that video helps gives some context around the agreements
and the tenant profiles as well, like the corporate let tenant profiles
in place. All the best. Thank you for watching this video. If you
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