Guest Article By Paul Smith
Did you hear the headline?
I am no longer amazed, only slightly saddened, by the inaccuracy of the many sensationalist headlines all over the media. The story was reported yesterday and I have searched for a relatively accurate article reflecting what is actually happening. The most accurate I could find is this BBC article.
Let’s step back and look at the full facts. I am sure like me you want to do run your businesses properly, with all the correct permissions and insurances.
As part of my ongoing education I have just spent 2 days in London at the Association of Serviced Apartment Providers annual conference. Fascinating perspectives, great information and huge competitive advantage form being there. If you are in SA or want to be then you should think about joining.
AirBnB was a hot topic at the conference. Some of the larger more institutional SA investors view AirBnB hosts as a major threat. Some have a view that what we do is “under the radar”, “pay no VAT how can we compete with dodgy operators?”, “unfair”, “illegal”. One senior executive even said from the stage that he thought to be a major threat AirBnB would have to offer an immediate booking option!!!!
He has clearly never heard of “Instant Book”.
I have to say once I explained that we operate with correct planning, full compliance, VAT and all the other permits to operate they were interested, polite and then their emotions turned to concern. The bigger players have one full time staff member for every 5 “rooms”, large offices and overheads that we simply do not need because of our full systemisation and leverage of resources.
Even when it is a person’s full time job at a senior level to run an SA business they do not understand AirBnB. This is a major opportunity for smaller, newer entrants to exploit the “Disruptive Technology” helping so many with their new SA businesses.
Lets take a closer look at this story then…..
Outside London you need planning permission, also referred to as “change of use” to operate SA.
Normal residential property (that many people are increasingly converting to Serviced Accommodation) is planning class C3 in England and Wales.
To allow short stays to mixed groups of people the correct planning use class for the exact same property is C1. This reflects how the property is being used and often there are no structural alterations.
Many local councils do not yet understand what Serviced Accommodation is which causes a lot of confusion. Some local authorities respond to a planning enquiry by telling people they do not require a change of use, just go ahead. When this happens I advise strongly getting this in writing. Then go ahead and obtain business rates, PRS or Property Ombudsman registration, ICO registration and everything else required.
Other local authorities require planning and if you are not sure if you will get planning, especially when considering a purchase, then a pre-application can be a very quick and relatively cheap sense check.
Now lets turn to London specifically.
London has a special rule which says you can allow guests to stay in your whole property (for good money) 90 days per year.
This is a special rule only for London. So London is not harder or worse for SA, this is better and easier than every other part of the UK.
This means you can trial SA in London with no planning permission for 90 days. Not advertised for 90 days but actually occupied for 90 days. Not one off but every year. This is SA for the whole property.
So if you wanted a base in London for you and your family you could operate it as SA 90 days every year to pay for the whole year.
In addition please don’t forget the “rent a room scheme”. This allows you to rent a room in your house. Just Google it and you will get the full detail. I love this as it is £7,500 per annum completely tax free regardless of your personal tax bracket. So even if you are a 45% tax payer you can still do this.
What AirBnB have actually agreed is to advise SA operators as they approach the 90 day limit that they need planning permission to exceed this and they will also notify the councils.
I believe this is great for professional operators. Make sure you know your options and likelihood of getting planning in your DIAMOND mine area for SA before you start.
I believe this will put off many from trying SA and should therefore reduce competition and increase SA profits in London.
This is great news for well educated action takers!
“Observe the masses and do the opposite” is often great advice…
Written by Paul Smith. Listen to his interview on Inside Property Investing here.