Manchester 5-bed serviced apartment: does 7.7% gross survive the costs?

The seller’s figures make the 5-bed serviced apartment look attractive, but I hesitate to accept £6,336 a month as dependable income without knowing what sits behind it. At £982,800 the gross yield is about 7.7%, and 91 days on the market also makes me wonder whether other buyers found a weakness in the numbers.

I would allow for seasonal vacancy, management and ongoing repairs, plus cash for a major item such as a failed heating system. Financing costs and the service charge could still make the result too thin. If the rent is guaranteed by an operator, I would focus on that operator’s obligations and reliability; if it is projected booking revenue, I would want a full operating-cost breakdown before deciding what net return is acceptable. What expense or risk would local buyers test first?

£6,336 multiplied by 12 is £76,032, so the headline calculation works. The missing number is the actual annual service charge, including what it does and does not cover. On a serviced apartment, a modest-looking gross yield can shrink quickly once utilities, insurance and operating costs are separated out. I wouldn’t choose a target net yield until that breakdown is clear.

Is £6,336 contractual rent from an operator, or projected booking revenue? Those are very different propositions. If it is booking revenue, check whether cleaning, linen, utilities, platform costs and guest turnover sit inside your management assumption. Vacancy also needs to reflect seasonality rather than being spread neatly across the year.

I’d also establish whether the lease permits the intended serviced use and whether any lender or insurer would treat it differently from an ordinary residential letting. The description “5-bed serviced apartment” is unusual enough that I would want the operating arrangement explained before discussing yield.

One more uncertainty: will the property fall under council tax or business rates in the proposed setup, and who pays? That depends on the actual use and circumstances, so it needs checking locally rather than assumed from the listing. Either outcome should appear explicitly in the cash-flow model.

I think everyone is focusing too much on service charges. Financing sensitivity could dominate the deal if debt is involved. Model the cash flow at the intended borrowing terms, then at a materially worse cost and on refinancing. A reasonable unlevered net yield can still produce uncomfortable cash flow when borrowing costs rise or income dips.

Financing matters, but Felix’s test comes after proving the property works before debt. I’d ask for the service-charge history, details of any planned communal works, and confirmation of the insurance position for serviced use. “The building looks sound” only addresses visible condition; it says little about lifts, roofs, shared systems or future contributions.

Build one annual schedule from the £76,032 income: vacancy, management, cleaning and turnover, utilities, service charge, insurance, routine maintenance, larger repairs, and whichever local property charge applies. Keep purchase and financing costs separate so you can see both net property yield and cash-on-cash return. If any line is still marked “included,” identify exactly who includes it and where.

The 91 days would make me investigate rather than automatically negotiate. It may offer bargaining room, but it may also mean other buyers found a problem with the income assumption, lease, service charge or financing. Ask how the £6,336 was established and whether there is evidence supporting it, not just an agent’s projection.

Then stress-test the deal without choosing a comforting target yield first. Reduce expected income, allow for higher tenant or guest turnover, increase the uncertain service-charge and insurance lines, and keep the larger repair reserve. If the net cash flow becomes thin under fairly ordinary adverse changes, 7.7% gross is not enough compensation regardless of the asking-price discount.