The rental market is transforming one of these is the rent to serviced accommodation strategy, which is becoming widely adopted. With this strategy, investors are allowed to lease properties on a long lease and after some time change it into a serviced apartment which tends to bring higher incomes. However, before going to such a reward business, one must consider whether it is worth the fight. This is where a deal analyzer comes in handy. This blog outlines how a deal analyser can help examine rent to serviced accommodation rental transactions toward making prudent business decisions.
What is a Serviced Accommodation Deal Analyzer?
As the name suggests, an investment or a deal analyser is a document (generally a spreadsheet or other software) that helps analyze specific property deals in an investor’s real estate portfolio. It looks into some costs, returns, and other numbers to know if a particular deal is worth it. In the case of rent-to-serviced accommodation, a deal analyser includes:
- Rentals
- Business (operational) costs (like cleaning and utilities)
- Expected occupancy loads
- Calculated daily rate income
- Level of earnings
Considering a confined structure like a deal analyser helps reduce exposure and reliance on the guessing approach and even enables one to utilize figures to make judgments.
Key Metrics in the Deal Analyser for Rent-To-Serviced Accommodation Deal
Before we go into how to use a deal analyser, it’s important to understand the key metrics it typically evaluates. These include:
Monthly Rent
As in most rent to serviced accommodation deals, the landlord will require a monthly rent which is the first expense. Such a figure should be established in the deal. You should be conversant with the rent for the entire period and how it fits into the cost structure.
Serviced Accommodation Income
This is the income you are anticipating earning from letting the property on a serviced accommodation basis. This is determined by the location, demand, and the charging price per night. To estimate this figure, sufficiently investigate the surrounding properties and their letting rates.
Occupancy Rate
Occupancy rate is the estimation of the total period when the rented property is likely to have an occupant. Taking an occupancy rate of eighty percent for instance will imply that within an average of one month, the property is occupied for twenty four days. A deal analyser would enable you to enter various occupancy levels to measure the effect of such occupancy on the profit margins of the unit.
Operational Costs
Any operating entity has expenditures, and a serviced accommodation is not spared, such as;
Cleaning fees Maintenance and repairs cleanup; Utility expenses such as electricity, water, and internet; Insurance These costs must be incorporated in the deal analyser
Administration charges
Where they plan to contract for a management company to deal with bookings, communication with guests, and maintenance of the property, the costs they would incur should form part of the analysis. As a rule of thumb, management companies are known to charge between 10% to 20% of the rental revenue.
Net present value
Most important though is the profit margin in your deal analyser. After taking into consideration all the costs that are incurred in a particular project, the deal analyser will help you to know the level of profit expected to be generated on a monthly and yearly basis.
Now that you appreciate the key metrics, here is how you appreciate a deal with a Serviced Accommodation deal analyser starting with rent to serviced accommodation deal.
Step 1: Enter Rental Charge For The Subject Property
First, begin by capturing the average monthly rent that is competitive for the property which the landlord shall forever remit to. This is what you will be assuming as your fixed cost and therefore it is very important to capture this effectively.
Step 2: Project the Expected Amount a Lot Will Go For daily
Second, survey the average daily rental of serviced accommodation facilities in that place. Especially look at the like properties for the geographical location, the size of the property, or the features of the property such as amenities. This data needs to be entered into the deal analyser.
Step 3: Determine the Occupancy Level
Estimate the occupancy data using market analyses or records. Be reminded that different seasons may yield more or less occupancy. It is prudent to be conservative with expectations to avoid over forecasting.
Step 4: Input Operating Costs
Make sure to include all your potential operational costs which encompass cleaning, utility costs, and the costs for management. These are necessary to the resolution of the actual net profit earned. These are prudent estimates that allow for unnecessary costs and understating the expenses.
Step 5: Project Income
The deal analyser will estimate how much gross income you will derive from the property by taking the nightly room rate and multiplying it by the occupancy rate. For instance, if the amount you charge per night is $100 while the rate of occupancy in the month is 75%, the approximate dollar figure to be earned in a month will be around $2,250.
Step 6: Calculate Net Profit
The operating costs and rent are outside the projected income therefore the deal analyser estimates the income after all those costs to be your net income every month and also on an annual basis. This figure gives you an adequate insight into the level of income that can be expected from that deal.
Sensitivity Analysis
Testing Multiple Scenarios One of the most advantageous features of a deal analyser is the possibility of performing various sensitivity analyses. You can input different scenarios, such as Higher or lower occupancy rates Changing nightly rates Additional unforeseen expenses For example, by altering these variables, one can measure the sensitivity of one’s profit. This is useful in preparing for the worst case and also in making sure that the deal can still be profitable even when the conditions are not favorable.
The Necessity of Conducting Serviced Accommodation Deal Analyzer
Even though the deal analyser is a robust device for forecasting future financials, it is within the whole process of making a decision. Make sure to:
- Investigate the local market: Determine whether there would be demand for serviced accommodation.
- Investigate local laws: Particular geographies have strict guidelines regarding short letting, which may affect your ability to conduct serviced accommodation business.
- Consult with property managers: Ensure you get informed on people’s experience managing similar properties.
Conclusion
A Serviced Accommodation Deal Analyser is one great asset in evaluating rent to serviced accommodation transactions. It enables you to assess possible revenues, comprehend your expenses, and eventually arrive at sound investment decisions. Properly following the steps presented in this post in assessing deals will help you do better in the serviced accommodation sector on whichever deals you close.
If you are considering venturing into the rent to serviced accommodation model, have a deal analyser suited for that purpose and apply it to deal with every component of the package offered. With this approach, you will be ready to take full advantage of the available opportunities while limiting the chances of incurring errors.
