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Staycations & EBIDTA

Veteran international investor John Corey comments

Staycations seem like the practical solution this summer. Explore your own country and avoid the hassle of vaccine passports or Brexit travel insurance complications. If many folks in the UK go down this path, could 2021 be a strong year for the staycation sector? Given this is Property Investor News, what angles are there for the savvy investor to capitalise on the trend?

Holiday homes, B&Bs and boutique hotels all come to mind. There could be investment opportunities with any of the above. The next layer out would be activity destinations where there is a private facility. That might be a sports complex, golf facility or something more exotic. Because this is PIN, let's stay away from opportunities that are an operating business with a small real estate component. Individual homes rented as a holiday let, B&Bs with minimal services and the smaller hotels without a restaurant are where I want to focus.

Short stay investing
Serviced Accommodation (SA) is the label I will use for this niche. SA as a specific niche will have higher turnover and higher gross income compared to BTL. There are no AST regulations to meet as everyone is on a license (not a primary residence). There is the possibility of repeat sales year to year if the SA business builds a brand with a loyal following. SA is much more operationally intensive than BTL. The average person can handle the work once they have mastered the basics. For some, SA is fine. For others, it is a job they would never want. As an active real estate investor, the attraction is the higher gross and net income for what might be a marginal amount of extra work.

As some of you know, an HMO's value is determined by comparing it to similar buildings ‘brick and mortar’ value. In some cases, it is possible to secure funding by using the income valuation method - a commercial valuation. If you can squeeze more income from a property, a commercial valuation will register an increased value for the same building. The commercial lender looks less to the building and more to the stability of the income stream. The building is a vessel holding an income stream, and the lender is taking a view of that income. If the building is empty, the value would be low. If the building produces income consistently, the value is high - the stability and quality of the income stream matter more than the structure. Accountants will recognise the term EBIDTA - Earnings Before Interest, Depreciation, Taxes and Amortisation.

The B&B myth
Couples sometimes fall in love with a location where they expect to enjoy the good life while slowing down a bit from their existing careers. They purchase a large property suitable for guest accommodation. In planning terms, the designation for the property is C1. A quick definition follows.

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