Grand Central Apartments – Cash flow positive.

Hi All,

I am looking at buying off the plan a 69sqm apartment in an excellent location in Newcastle. The development is called Newcastle Grand Central Apartments. The cost of the apartment they are asking is $339,950 on 3rd floor with harbour views. A car space would be an additional $28,500. Now, this "investment" includes a guaranteed rental return of 6.75% over 3 years (i know people's alarm bells start to ring at the sound of "guaranteed rent return"). I want to get your thoughts on this. I am a first home buyer so would be entitled to the full $24,000 and I can live in this apartment for 6 months and then lease it back to prime residential management and have it managed by central apartment group for 3 years (all the same company). At the end of the 3 years I can occupy the apartment, sell to an owner occupier or have the property managed by an external agent. If I elect to have a long term occupant the fees payable to Newcastle Grand Central will include 7% on gross rents for unfurnished leasing, 10% of gross rents where I own the furniture and 15% gross rents where the furniture is rented through central apartment group. Or the other option at the end of 3 years is to have it Managed by Newcastle Grand Central after Expiration of the Prime Residential Management Lease

(copied from marketing material):

At the end of the Prime Residential Management lease, if owners elect to have their units
let on a short-term/medium-term basis then it is the intention subject to any legislative
changes, that apartments will be managed by Newcastle Grand Central in the following
manner:
• Newcastle Grand Central will charge a flat Management Fee of 47.5% of Gross Rents
(plus GST) and be responsible for all outgoings in respect to the Apartments with the
exception of expenditure of a refurbishment Costs and Maintenance of a Capital
Nature, Council Rates and Body Corporate levies;
• Before the distribution of the return’s – booking reservation fees (charged externally)
and credit card fees will be deducted from the Short Term Pool before distribution to
owners and management. The whole basis of the system is that owners and
management share in the upside of growth in Business Revenue. In other words – the
more Central Apartment Group makes the more the investors make.
• Owners’ stays whilst their apartment is being managed by Newcastle Grand Central
are at half the rack rate;
• If owners in the short-term pool elect to have their returns pooled, then it is intended
that the distribution of rental income be based on the following formulae.
A x B
C
Where:
A = factored index of the original purchase price
B = Amount of funds to be distributed to owners
Newcastle Grand Central 16 Version1,1
C = total purchase price of all units in the pool

Sorry for such a long post but I wanted to provide you guys with as much info as possible as I really want comments from people more experienced than me at this.

Thanks,
Chris

PS Here's a link to the development's fact sheet:
http://www.primeinvestment.com.au/factsheet/newcastle%20handout%20gen%20DEC08%20rb.pdf