Student Case Study with Kim and David Finch
To continue our English Tourism Week celebrations, we had a chat with our students Kim and David, who have recently refurbished a block of flats into an income generating asset, which they now successfully let out on Booking.com.
To learn more about serviced accommodation see our introduction blog here.
Tell us a bit about yourself and your journey with Fielding Financial…
Up to October 2013 we both had job’s and were fortunate to have paid off our mortgage. Then David was made redundant (Oct 2013) and at 54, was unable to find alternative employment. Kim then developed a One-Off stress related heart condition (Jan 2014).
Over the course of the next few months, we decided to change everything. We took a BTL mortgage on our home in Woking and used the proceeds to buy our current home. We set the Woking home initially as an 18-month furnished let, with an international engineering company and then later as serviced accommodation. We had a flat in Northampton that we also rented out, and instantly we were property investors. In hindsight, we were amateurs.
After 2 years, we recognised our lack of knowledge and set about doing something. We joined the FF family in April 2016.
In July 2017 we sold the Northampton flat and a year later we disposed of the Woking property. We’d learnt enough to time the sales so we paid no CGT, but it took a further year before our property business started to emerge.
– Credit to Kim and David Finch
Tell us about your most recent serviced accommodation project…
Throughout 2016 and 2017 we attended property investment meetings in our “goldmine” area, and got to know a number of fellow investors, landlords, and developers. In 2017 Kim was talking to a developer about our SA business, who was very interested in a potential deal with us. He would rent a property to us which we could then utilise – our “Rent to SA” business was starting to emerge. But it took until September 2019 for the 5 year contract to be signed, and it was for a block of 12 brand new 1 bedroom apartments in Bristol. We went live in December 2019. We furnished the flats to a high specification, they all have zipped and linked beds, so that can be used for couples or single contractors. They all have a sofa beds so they can sleep 4 people, and the largest flat is set out to accommodate a family, it has 2 “guest” beds underneath the main beds, and 2 sofa beds. There is parking for 5 flats, which we rent out separately for whichever guest want parking. There is free parking in the road.
We used a local Interior Designer who had won several awards to furnish the flat. They look really stylish but in hindsight using a small local designer has had its issues, and we would use a different designer for our next project.
2021 should be a good year, we should be able to claw back any losses made due to the pandemic during 2020. No-one using the R2R model envisaged having to deal with a pandemic in 2020. Unfortunately our Ops Manager did not apply for Business Rents while we were out of the country January to end of March 2020! The flats were full before the start of the pandemic and emptied overnight when Covid lockdown was called.
Why did you decide to choose serviced accommodation as an investment strategy?
Our previous experience with both the Northampton flat and Woking house was not good, in part because they had been our home and there was an emotional tie. They had not been furnished for rental, and as time went on, we could see the aggressive wear and tear from careless use was impacting our mental well-being – hence the reason to sell both. We did not want AST tenants if you get the wrong tenant that can be hassle.
What has been your favourite part of working on your serviced accommodation projects?
We’ve enjoyed the interaction with our operational team and seeing reviews of 9+.
We recognise that for all but 3 months of our operation, we have been in some degree of lockdown, which has required us to be innovative in how we trade, so any R2R losses are kept to a minimum and everyone is kept safe.
We traded successfully through the period, offering 4 fully furnished apartments under AST agreements. The remaining 8 were let under SA agreements to NHS staff and other essential workers. Some were for a week while others were longer – one ended up for 11 months in 3 different flats, so did not become an AST.
What has been your biggest challenge so far with your serviced accommodation project/s?
Our model meant we had leased all our furnishings and equipment for 12 flats over a 5 year period. We also rented 12 flats. The fixed costs were considerable (over £10k pcm). During Covid it was essential that we had “bums in beds”. We mailed businesses, set up referral agreements with letting agents & estate agents, and tried to push the apartments whenever we could.
Getting the interior designer to take on her responsibility of replacing / sorting out any furniture which was not of a sufficiently high standard for Serviced Accommodation.
– Credit to Kim and David Finch
What are your top tips for someone who is just about to get started in serviced accommodation?
A) Understand your market to the n’th degree. We knew our apartments were not in a tourist desirable area, but they were close to major motorways (6 minutes), local train services (5 minutes walk), close to Bus Routes into the centre of Bristol, and close to key employers including the NHS and the Universities
B) Ensure your contracts with service providers are in your interest. That invariably means that you need to have authored them. It is your business, and they want to work with you, so they should use your agreement.
C) Don’t commence an SA business after the end of the season. Starting from Zero bookings in December was never going to be great, and our marketing had not kicked in early enough as we did not know when we were going to be handed the flats. So we lost money in December and January which you would expect when you first start at Rent to Rent project. Fortunately we had a cushion of funds to cover bad times. February & March 2020 were profitable which was really good as we were pricing the flats low to get the reviews, but then came Covid Lock Down, and the flats emptied overnight. April 2020 was disastrous and we lost nearly £7k that month alone across the 12 apartments.
D) Know your cash flow and be very careful when making spending decisions arising from guest feedback. We had 12 units, so every expenditure would be multiplied by 12. We also found that some of our equipment might be OK for a home, but simply didn’t stand up to guest use. We fell out with our interior designer when the loo brush holders had rusted through in 5 months ( and again 3 months on), the bathroom pedal bins broke within same period, and the kitchen knives were blunt and dangerous within 2 months, coffee tables were collapsing. Unfortunately we only had a verbal contract that all larger items would last for at least 3 years. So advice for anyone undertaking Service Accommodation, make sure that any time lengths for any larger furniture is written in a contract, so that the supplier has to replace, if does not last the stated length of time. There are Serviced Accommodation Furniture providers who provide contracts of between 3 to 5 years. Also if photos of the finished flat(s) are included in the contract make sure this is written down somewhere.
E) Reviews are important, it is important that you check why, whenever you are given a low score. Looking at our scores we need to do some work as we have slipped from 9 to 8.8. Wi-Fi appears to have been an issue, and the Ops Manager was not very efficient a couple of times.
– Credit to Kim and David Finch
What’s next for you?
We developed a 4-prong strategy:
A) We would set up SA businesses on a “Rent to SA” basis, with all day to day operations being outsourced, giving us time to expand our other businesses. Our experience with Bristol and research suggested we needed a 6 month period between these projects. As you will appreciate we have not started another R2R project due to the uncertainties of Covid.
B) We would invest in developments. Our first project was in South London. We executed further investments with other projects in March 2019, July 2019 and December 2019. We are currently invested in 2 projects, the latest being a 76, 1 bedroom units in Bagshot.
C) We would undertake our own developments based on commercial to residential conversions, utilising the skills of others to manage the developments. To date we have made offers on a number of opportunities but have not secured any. We are very conscious that we need a 25% to 30% return on GDV to have access to Institutional Development Loans. Also one needs this margin so if anything untoward happens one still has the money to pay back the private investors, and create a reputation of always paying back one’s investors in full and on time.
D) We will undertake other development projects if there is a good Return on Investment.
Depending on the project, we will keep some of the units for ourselves and use them for Serviced Accommodation.
Inspired by Kim and David’s story? Check out their stunning self-catering apartments in Bristol here.
Do you want to learn more about investing in serviced accommodation like Kim and David?
See our Serviced Accommodation Online Course here.
