Hi all I'd like some advice/opinions on some refurbished apartments i have come across, this is the deal:
A company known as the Azimuth Group have refurbished an old motel which now consists of 49 units due for completion around April/may sometime. They are priced at $159000 with the developers paying a return of $15900pa for the first two years and also covering all outgoings for the first two years including body corportate, rates and insurances. Guests who decide to stay at the apartments will have access to 24hr room service, cable tv, internet access and most services typical of an executive holiday destination ( all of this is according to the developers). I am yet to make a formal inquiry through the agent selling these apartments regarding proposed vacancy rates etc but i just thought this all sounded a little too good to be true considering they are also throwing in a furniture packagae for free!
Has anyone heard of the Azimuth group before ( they are based in Melbourne and Brisbane) and what do you think on what they have proposed??????
Any insight would be greatly appreciated
Thanks
Serviced apartments are something to look into VERY carefully.
The thing that always sends up alalrm bells for me with an investment offered and marketed to the public, and with rent returns as well, makes me think; "who is paying for all the advertising and the rent return?".
It sure isn't the developers. They're there to make money.No; it's YOU usually.
So this means that the cost of the ads and the rent return is most likely built into the price of the apartment and is over the market. How much by? Especially if it a 10% return on the rent; that's fantastic in today's rental climates, where in most cap cities the rent returns are less than 5%.I would be researching the selling price of similar existing apartments in the immediate area first (at least 3 years old, and sold in the last 3 months). What are they selling for, and what are the rent returns for similar serviced apartments?
The other concern is the size of the unit, and it's use. Banks wil generally not lend on apartments smaller than 50sq/m, and if it's use is for serviced apartments, which is more specialised, you may struggle to get any finance, or if you do, you will possibly pay a premium for it in the form of higher interest rates, loan mortgage insurance, a lower LVR, or all 3. That will eat into your nett profits.
Also, the holding costs for these apartments can be high; on-site manager, lifts, pool, gym, room service, body corp, maintenance etc.
Lastly; make sure of who you are buying the apartment from. You don't want to be buying the apartment from a management group (Azimuth cloud be just a management company), as it may be just a shelf company, that is run by who knows, who is buying it from another enitiy and trying to on-sell it to you efore their settlement, and could at anytime go broke and leave you with nothing.
A very good reply Marc, and I would agree with the obtaining of a report of similar sold properties in the area. Often serviced apartments or Hotel rooms look good at face value and more ofen than not the rent return is somewhere between 8 and 10 percent. This is perhaps ok if you just want to park some cash somewhere at retirement and live off the rental income while maintaining your asset value, but as an investment looking for capital growth, they are very dissapointing and I have to say very difficult to sell. The main problem being that as the first purchaser buys them on a rate of return, unless the rents rise significantly then there is no rise in sale value because the new buyer wants a similar rate of return to the seller.
Jon
Thanks very much guys, that has certainly cleared by head and given me a lot more to think about. I did have my suspicions from the beginning and your responses have helped me head in the right direction ( i hope)
Cheers
Look at the worst case scenario.
The motel/apartment operator goes bust. There goes your income and your rental guarantee.
Who can you rent to? Many motel rooms are simply a bedroom and a bathroom, and would not be suitable for anyone other than overnight guests. Some are more like studio apartments with cooking facilities etc, which are a little more flexible.
You will be paying for all the facilities, plus cleaning after every guest. Add in breakages and pilferage, commission and fees for the cable TV, gym etc and your return will be greatly diminished.
As this is a new venture, there are no actual figures to look at, simply "projections" which really amount to a wish list.
I would be very careful.
Marg
You must be logged in to reply to this topic. If you don't have an account, you can register here.
