Why headline yield is usually a fantasy
Most quoted yields on contractor and serviced property are gross: annual income divided by the property value or purchase price. It is a tidy number and it flatters everything, because it ignores every cost between the rent landing and the profit reaching your account. To compare a contractor property honestly against a standard buy-to-let, you have to work out the real, net contractor property yield, not the brochure figure.
The serviced model earns more per night than a long-term tenancy, but it also costs far more to run: bills, cleaning, management, voids and faster wear all come out of that higher income. Strip those away and the genuine return can still beat a buy-to-let comfortably, or it can disappoint, and the only way to know which is to do the full sum.
Start with realistic income, not best-case
Income on a contractor let is nightly or weekly rate multiplied by occupancy, and the trap is using a peak rate at full occupancy. No property runs at 100 percent all year. A sober projection uses a realistic average rate and a realistic occupancy across twelve months, including the quieter weeks, not the figure from your single best month.
Be honest about seasonality and ramp-up too. A new contractor let takes time to build a reputation and a pipeline of repeat bookers, so the first year often runs below the steady-state figure. Model a cautious year one and a stronger stabilised year, and base your decision on numbers you would still be comfortable with if things ran slightly below plan.
Count every running cost, not just the mortgage
This is where gross yield collapses into something more honest. On a serviced contractor let you, not the tenant, pay the bills, and they are constant because the property is furnished, heated and connected whether or not it is occupied. These costs do not appear in a buy-to-let comparison, which is why the two cannot be compared on gross yield at all.
Add them all up before you decide. Underestimating the running costs is the single most common way hosts talk themselves into a property that earns less than the buy-to-let they already owned.
- check_circleUtilities: gas, electric, water, and fast reliable broadband included in the rate
- check_circleCouncil tax (or business rates where applicable) during occupied and void periods
- check_circleCleaning and laundry for every changeover, plus consumables and restocking
- check_circleFurnishing, replacements and the faster wear that comes with constant occupation
- check_circleInsurance written for serviced letting, plus compliance and certification costs
Management is a real cost, even if you do it yourself
A contractor let is an operating business, not a passive investment. Someone has to handle enquiries, bookings, pricing, check-ins, turnovers, maintenance and compliance. If you pay a managed service, that fee is an explicit line in the accounts. If you do it yourself, the cost is your time, and pretending your time is free distorts the comparison with a hands-off buy-to-let.
Either way, put a number on it. A managed service typically charges a percentage of revenue; self-managing costs you hours each week that have real value. Including management honestly is what separates a true net yield from a fantasy, and it is the line hosts most often leave out.
Voids and wear are costs, so price them in
Every empty week is lost income while the fixed costs keep running, so a realistic occupancy assumption already bakes voids into your income line, do not then forget them on the cost side. Plan for some vacancy; a contractor let that never has a gap is the exception, not the rule.
Wear is the cost hosts most often ignore. Constant occupation, frequent changeovers and working guests mean furniture, flooring, appliances and decor age faster than in a long-term tenancy. Set aside a sinking fund each year for refurbishment and replacements, because that spend is not optional, it is what keeps the property bookable and the rate defensible.
Working out the real, net figure
Net yield is realistic annual income minus all running costs, management, voids and a wear allowance, divided by the total capital you have put in, purchase price plus furnishing, set-up and any improvement costs. That single percentage is what you compare, like for like, against the net yield of a standard buy-to-let.
Done this way, a well-located contractor property often still comes out ahead, because the income uplift outweighs the higher costs. But not always, and that is the point: the honest sum protects you from a property that looks brilliant on gross yield and disappoints on net. Run the numbers before you buy, not after.
- check_circleNet yield = (realistic annual income − all costs) ÷ total capital invested
- check_circleTotal capital = purchase price + furnishing + set-up + improvement spend
- check_circleCompare this net figure, not gross, against a buy-to-let's net yield
Getting a grounded number before you commit
The value of doing the full calculation is confidence. When you have priced in bills, management, voids and wear, the yield you are left with is one you can actually rely on, and you can decide whether the extra effort of a serviced contractor let genuinely beats the simpler buy-to-let alternative.
A specialist who runs contractor accommodation across UK cities can help ground those assumptions, realistic rates and occupancy for your area, sensible cost estimates and what management actually involves, so your projection reflects the market rather than hope. That practical input is part of what Trade Nest Stays brings to hosts weighing up whether a contractor property stacks up before they buy or convert.
Frequently asked questions
What's the difference between gross and net yield?expand_more
Gross yield is annual income divided by property value or price, before any costs, which is why it always looks generous. Net yield subtracts every running cost, management, voids and a wear allowance first, then divides by your total capital invested. Only the net figure tells you what you actually keep, so always compare on net.
Does a contractor property really yield more than a buy-to-let?expand_more
Often, yes, on a net basis, because the income uplift from serviced letting outweighs the higher running costs in good locations. But not always. The serviced model carries bills, management and faster wear that a buy-to-let does not, so the only reliable answer comes from doing the full net calculation for your specific property.
What costs do hosts most often forget?expand_more
Management (especially the value of their own time when self-managing), a realistic wear-and-replacement allowance, and the bills that run during void periods. Leaving these out is the classic way a property that looks excellent on gross yield turns out to underperform once it is actually operating.
How should I estimate occupancy for a new contractor let?expand_more
Conservatively, and below steady-state for year one. A new let needs time to build a reputation and a pipeline of repeat bookers, so it rarely starts full. Model a cautious first year and a stronger stabilised year, and sense-check your assumptions against realistic local figures rather than a best-case scenario.
Should I include my own time as a cost?expand_more
Yes. Whether you pay a managed service or run it yourself, operating the let has a real cost. A management fee is an explicit line; your own time is an implicit one, but it is just as real. Ignoring it makes a self-managed contractor let look more profitable than it is against a hands-off buy-to-let.