Investing in serviced accommodations has become an increasingly popular trend in the real estate world because it provides profitability and reasonable flexibility. Such properties, which are usually leased out on a short term basis to corporate clients, tourists, or transients, can be highly lucrative if run properly. However, to optimize profits and mitigate losses, investors must do their homework well and gather every relevant detail regarding a potential deal before attaching their name to any deal.
When looking at a serviced accommodation deal, one’s expectations should go past the property’s acquisition costs and the rental income. It requires an investment analysis that takes into consideration factors that can ascertain how much income the given property can generate, how profitable it would be, and what the total return on investment (ROI) would be. These metrics enable serviced accommodation property performance evaluation and facilitate decision-making in the case of investors.
Neglecting this analysis would result in situations in which the expectations of what it can offer will be higher than its actual performance, resulting in very expensive errors.
Top 5 Metrics of Serviced Accommodation Deal Analyser
1. Occupancy Rate
Why It’s Important: Utilization rate, is defined as the proportion of the available nights that a property was occupied. It is one of the most intrinsic aspects of the serviced accommodation industry. It provides a direct measure of the property’s level of popularity, market activity, and turnover. Higher occupancy rates are generally interpreted as positive performance of the property. Conversely, occupancy rates below average confounds the questions about market competitiveness, price levels, or the demand for geographical regions.
How To Interpret It
Market Analysis: Investigate occupancy statistics of analogical properties existing within the same location. This would involve taking note of the scale, category, and preferred clientele for the specific unit being considered.
Seasonal Trends: Establish and appreciate the fact that the occupancy statistics may change from the average because of season cycles, special days like holidays as well as local happenings. It will be helpful to study such trends to determine peak and low seasons for adequately pricing the products.
Historical Data: Scan previous occupancy statistics if available, or out of the general industry statistics. Understanding such in advance is also important to timely set realistic targets and identify the rate patterns, which may affect revenue generation.
Quick Tip: An occupancy rate of around 70-80% is optimal for making an income. This rate is also a sweet spot for boosting profitability and determining pricing levels. If an occupancy rate is over 90%, most of the time it indicates space to raise rates.
2. Average Daily Rate (ADR)
Why It Matters: The average daily rate or ADR is the revenue in dollars for each room available for sale that has been occupied during the night. This is an important measure that shows the income capability of your serviced accommodation property, assists in setting prices, and makes sure that the nightly rates are not more than what the owners can profit from.
How To Analyze It:
Which Method Would Work Best For The Company: ADT of competitive serviced accommodation around the location. This is necessary for ascertaining whether your rates are within reasonable expectations and whether there are opportunities to change them.
Time Consideration: Price is a major differentiator across target market segments. For example, business travelers may be less price-sensitive than budget travelers which may in turn drive your pricing decisions.
Seasonal Adjustments: Maintain ADRs for low and high seasons which will maximize your serviced accommodation revenues. For instance, during the peak periods of the tourist season when occupancy is at its highest, an increase in the ADR by a small amount could provide a lot of additional income without turning away guests.
Quick Tip: Consider employing dynamic pricing tools or integrating serviced accommodation property management systems to enable you to cut down and adjust the ADR off seasonality, demand, and competition parameters to so maximize the daily revenue per room.
3. Revenue Per Available Room (RevPAR)
Why It Matters: RevPAR is a composite indicator that combines the relationships between the occupancy rate and the average daily rate (ADR) and assists in evaluating the success of a hotel facility in obtaining the necessary revenues. It also allows managers to assess the level of revenue or the occupancy rate alone, which would be lower than the other.
How to Analyze It:
Formula Calculation: RevPAR is determined by the multiplication of occupancy by the average daily rate. In simpler words, if your unit has an occupancy of 80% and an ADR of $120, then it implies a RevPAR of $96 for the property.
Market Comparison: Determine the extent of your RevPAR with other properties in the vicinity. Effective pricing tends to improve the facility’s standing in the market and this is expressed through higher RevPAR.
Revenue Optimization: Increasing the RevPAR requires an increase in either the occupancy or ADR of the property or both. It may mean changing the prices, enhancing the marketing strategies, and providing the target consumers with promotional offers.
Quick Tip: Values for RevPAR should be consistent and prices be recommended as often as needed. It is important to emphasize that RevPAR allows even broader areas of improvement for revenue management, not only occupancy but also pricing.
4. Net Operating Income (NOI)
Why It Matters: The net operating income (NOI) is the corresponding operational profit earned and all operational expenses are deducted except the tax obligations and cost of means of finance. It is an important parameter in the assessment of the profitability of a property and gives more details on the revenue that can be expected from the investment.
How to Analyze It:
Calculate Operating Expenses: Include costs such as serviced accommodation property management, utilities, maintenance, marketing, and cleaning services among others. Familiarity with such expenses helps ensure that accurate median operating expenses based on property size are quoted.
Formula: NOI = Total Revenue – Operating expenses. If, for example, total revenue comes to $150,000 and in the same period, the operating expenses have escalated to $50,000, there is an expectation that the NOI will be $100,000.
Cost-Cutting Opportunities: When doing these operational reviews, management staff must seek opportunities if their expenses are minimized. For example, serviced accommodation property management processes could be automated, and cost negotiations with cleaning service providers could cut operational costs.
Quick Tip: Operating income can be seen as a fixed fraction of revenues, and this fluctuates with expenses; therefore, the operating expenses and revenues should be tracked and reviewed frequently.
5. Cash-on-Cash Return
Why It Matters: Cash-on-cash return is used to evaluate the yield obtained through investment cash, presenting a measure of how serviced accommodation profitable investment is with respect to the liquid cash invested. Such a measure is important for prospective investors who would want to know the ROI on their seed capital.
How to Analyze it:
Formula: Cash-on-Cash Return = Annual Net Cash Flow / Total Cash Investment x 100 Where, Annual Net Cash Flows, for instance, are $15,000 and an investment amount is $150, 000. Therefore, cash-on-cash return in this case is 10%.
Investment Benchmarks: Cash-on-cash return should be used to set benchmarks regarding the returns investors expect on their equity irrespective of the amount. It should guide investors on the opportunities to pursue when making comparisons among investments, since serviced accommodation properties with significantly higher returns can be regarded as better investments although, greater returns are synonymous with greater risk.
Impact of Financing: For most investors who seek financing, cash-on-cash return assists in determining the level whereby income generated from the investment in a property can pay off the economic burden of capital lei. Ensure that monthly loan installments, normal interest charges, and any other financing costs are included in the calculations.
Quick Tip: Cash-on-cash return is helpful for the analysis of different investment serviced accommodation properties as comparisons can be made based on the leverage level. Higher expected returns are more attractive but always beware of the risks that accompany such high returns.
Conclusion
It is important to note the most important figures such as occupancy rate, average daily rate, revenue per available room, net operating income, cash on cash return, and others when assessing a serviced accommodation investment. Each metric provides a different insight into the income-generating capabilities and financial position of the asset enabling investors to make rational, verifiable decisions. Utilizing several of these metrics provides investors with a complete picture of the earning possibilities in the short run and the viability of their investment in the long run.
Continuous assessment of these metrics makes sure that your asset stays relevant and profitable and meets your investment objectives. However, thoughtfully developing serviced accommodation investments can be very profitable and environmentally friendly. The objective is to achieve the highest levels of occupancy, the best pricing strategy, the lowest costs, and the most attractive returns on your investment.
Monitoring these indicators will not only enable you to make sound investment decisions but will also allow you to expand your serviced accommodation portfolio without hesitation.
