Buy-to-Let, Apart Hotel & Other Rental Structures

Buy-to-Let, Apart Hotel & Other Rental Structures - Property Concepts Series

Making income through property by way of rental income; such as buy-to-let, is a popular way of leveraging the investment opportunity that property has to offer. While we never recommend placing reliance upon rental income (unless there is an underwritten guarantee from the developer / operator) it can provide a supplementary income that can help cover the costs of property ownership.

There are a number of structures that are available to rent property and if you are looking to rent your property, you should consider which model will work best for you.

Buy-to-Let – Managed Rental

Managed buy-to-lets tend to be long term rentals of anything from one week to a year and sometimes longer. This sort of rental is administered by a rental agencies or holiday lettings service who fill the property with medium to long term tenants. The determination of the most suitable sub-structure (i.e. whether the property is let on a long or medium contract) is dependent upon the location and type of the property – it’s entirely reliant on the market.

If you are buying a property and you intend to have a managed rental, it is worth talking to local agents of both types to understand viable demand as well as management costs.

The benefit of this type of property is that you can elect to stop renting it to tenants any time you like (subject of course to existing contracts) and decide you want to live in it or use it for another purposes etc. This gives you significant flexibility within the confines of any contract that you enter with management companies.

Buy-to-Let – Self-Managed Rental

With the prominence of Air BnB and the likelihood of new similar sharing culture businesses that will enable owners to rent direct, the self-managed rental has become a more viable model than ever before. If you live within a reasonable distance from the property it may be viable for you to look after the entire gamut from check-ins to maintenance etc. Long term rentals can also be self-managed but there are less outlets to let directly to long term tenants than focusing on holiday lets.

There are a number of management companies who can take care of check-in and check-outs of customers to supplement your own management.

This is the most flexible of the rental structures, but puts more pressure on you as the owner to be responsible for the lettings process as well as the achievable income.

Aparthotel

An aparthotel is, in effect, serviced apartments with a central reception that can be rented to customers on a short, medium or long-term basis. The purchaser of the property elects to place their property into a centralised management system put in place for the resort or block of apartments.

Depending on the structure of the aparthotel it may fall more on the hotel or on the serviced apartments side. Income is usually set as a proportion of either the after tax income or the profit on the unit or pool of rental properties.

You are likely to receive some use of the asset on a fixed basis, often off-peak to maximise income from the property during peak periods. Long term stays are not viable. The rules are set by the management company and so need to be checked by any prospective buyer.

Sale & Leaseback

A typical method of ownership in France, the sale and leaseback model provides that the new buyer of a property leaseback property to the seller, usually for a mid to long term period. The terms of a leaseback often vary with some providing a guaranteed tenant while others simply require a leaseback to the seller for a rent without the details of the income source being clear. In both instances, there is usually a minimum term during which the property owner promises to lease the property back to the seller.

Developers and other property owners sometimes use this structure as a means to free up capital for other investments or business commitments while retaining use or operation of the asset.

Care must be taken with terminology as some developers use the phrase sale and leaseback with no guaranteed lease terms or fixed payment amount. Buyers should make sure that any sale and leaseback agreement includes terms of the income to be paid and guarantees it for the period of the arrangement.

Personal use can sometimes be arranged for a sale and leaseback, but this is very strongly linked to the way that the leaseback will be utilised by the seller.

Hotel Room Ownership

Owning a hotel room can provide a very strong income opportunity but with less personal use flexibility. Hotel owners or operators often sell hotel rooms as a method to fund the build of a new facility, this means that the burden of the capital expenditure is borne by investors instead of the hotelier.

The contracts on hotel room ownership usually facilitate some form of buy-back at a future date or alternatively include a clause where the hotelier may renege on any obligation to operate – this can be the case if they find they are losing revenue on the operation of your unit. Hotel room ownership contracts usually put the power in the hands of the hotelier, but if you don’t mind that and take care to read and protect your rights, there are excellent returns to be made.

Buyers of hotel room assets should take care to understand if they have any title to the asset. Usually, hotel room ownership is undertaken through a central investment mechanism and the ownership of the property asset is that of the hotelier.

Owners are not usually entitled to personal use in hotel room ownership, but may be offered certain discounts or incentives for stays.

In Summary

We have set out these options side by side so that you can understand how they compare in fundamentals. Selecting the right rental structure for you depends very much on your needs and preferences

 

Buy-to-Let (Managed)

Buy-to-Let (Self-Managed

Apart-Hotel

Sale & Leaseback

Hotel Room

Rental Types

Short Rentals (1 day to 1 week)

 

x

x

x

x

Medium Rentals (1 week – 1 month)

x

x

x

x

x

Long Rentals (1 month +)

x

x

 

x

 

Personal Use Rights

Own Use Allocation

x

x

x

/

 

Complete Own Use Flexibility

x

x

     

Ownership Structure

Ownership of Title

x

x

x

x

 

Shareholding / Equity

   

x

x

x

Rental Management Control

Power to Select Operator

x

x

/

/

 

Withdrawal from Rental

x

x

/

/

 

X = item applies

/ = depends on contract

MEPM have a range of rental properties available in various projects in our current destinations. Why not find out more or contact our team to understand what rental property would best work for you.

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