[?]Hello world,
I’m hoping someone out there can help my brother with some advise on purchasing a commercially leased serviced apartment. He has been approached by a property salesman and is starting to be pressured to sign. The apartments are only 2 storey, a good city central location in Melb. currently leased commercially with a 5 year renewal, each 5 years for up to 25 years. The deal sounds way to easy and way to good.. eg: cost will be for him out of pocket $28/week. Property is $230K for basically something the size of a double garage.
If anyone has any experience with this type of investing could you help my brother with some intellegent financial questions he should ask and please advice on any pitfalls and fidden nasty’s that they aren’t telling him….
Any help or advise would be greatly appreciated.
many thanx,
Sha.[
]HI Sha[
]
Most apartments in the Melbourne CBD are oversupplied, often in order to disguise this rental guarantees and 5x5x5x5 lease arrangements are used.
The rental gaurantee is paid by the property being overpriced and the lease is not renewed after the initial period.
The tennant is induced to take an initial lease at a lower price and this is also subsidised by the purchaser without their knowledge.
The sale can proceed in safety if it is conditional on the purchaser obtaining an independant valuation.
It is also wise to provide your own solicitor etc as this type of pressure sale will offer to provide you with all needed services in order for them to con you.
This is how 2 tiered marketing scams work.
Finance for these types of scams can be arranged by using the equity in your home,for exampleInvestment Property price $230k
IP Valuation $160kThe Differance of 90k can be covered if your equity is $90 + $23k [deposit + cost]=$113k.
Also due to oversupply a purchaser may see an actual drop in the true value of their investment when the market corrects itself in the future.
Regards
Bryce Inglis
[email protected]
http://www.ipal.com.auThanks Bryce for your advice.
The serviced apartment has currently been running for 2 years, relatively new established business. The building is older age and was totally renovated 2years ago prior the the business establishing. Loacation is George St, East Melb. Only 2 apartments currently for sale.
Original owners cashing in…
It has suggested that he obtains a prospectis on the business, which was available 2yrs ago but apparently not now, does this sound dodgey..
Would he be entitled to a copy of the leasing agreement with the business involved?
Many thanks,
ShaServiced apartments are a niche market and many investors won’t touch them as it can be difficult to get out of the investment. The ongoing mgmt costs can be quite steep.
IMO he would be far better off purchasing a conventional property – preferably a house.
I wouldn’t touch a serviced apartment. Hard to get finance, hard to onsell, low capital growth and relatively low rental yields.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
hi sha
if this sort of investment interests you or your brother look for something that can have a dual purpose.
regards
alfHi all,
I am in the middle of a commercial lease back deal. Its my first niche property so its a little scary. The NAB is providing the guarantee for the first 5 years. The lessee assumes all operating costs, including Rates,Mgt Fees, Body C, Vacancy and Insurance. The lease is 5x5x5 with a ratchet clause. Return is 8% net, it is CF positive and its positively geared. Its off the plan so the depreciation schedule is excellent(4%)
Would anyone consider this a good buy ? The words ” 2 Tiered Marketing Scams” and Bryces reply just sent shivers down my back.
I have the info in PDF, I would appreciate anyones comments
Regards
J
Thanks for your response Polar_bear. That is what I also suggested to him.
Sha.[]
Serviced apartments are a niche market and many investors won’t touch them as it can be difficult to get out of the investment. The ongoing mgmt costs can be quite steep.IMO he would be far better off purchasing a conventional property – preferably a house.
[
]Terryw thanks for this advice – I will get him to check out the average rental yields. asd they should have data from the past 2 years.
They will organise the finance – of course.
I will also get him to ask how long they have currently been for sale for.
Only being that they are 2 or 3 stories high in small blocks I would have thought if the business closes down he would find it relatively easy to lease himself or sell, as it is close to the city. What are your thoughts here.
Sha[]
I wouldn’t touch a serviced apartment. Hard to get finance, hard to onsell, low capital growth and relatively low rental yields.Terryw
Discover Home Loans
North Sydney
[email protected]
]
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