Hi all,
It’s my first post, but I need everyones advice. I’ve been surfing the realestate internet pages for many months now searching for a cashflow positive property, there aren’t many out there. However there’s one type that keeps on coming and that’s to buy a room in a motel in say Melbourne or Brisbane.
These things seem to be cashflow positive using the 11 second rule (There was one in Brisbane for $75,000 alledgley generating $180 a week rent), the fact that they are leased back to the motel for 5 years seems even better. If you want to see some of these property just go to realestate.com.au and search Melbourne or Brisbane.
My question. What’s the catch, what am I missing. They seem to good to be true. I have many theories as to why they seem like a good offer, from lack of capital gains, to the inability to “wrap” them.
Please guys, I need info, are these properties good cashflow positive investments or is there basic hidden dangers that I dont know about.
Any opinions/help will be appreciated.
Thanks
RodThe catch is that it may be hard (read very hard)
to arrange finance for this sort of investment.Banks have a problem with small spaces and also
you’ll be borrowing on commercial terms.andy
My partner and I have looked at several of these types of deals in the past and there seem to quite often be gigantic management fees involved along with cleaning fees, laundry fees etc etc.
One we looked at was for sale at a large discount to the purchase price because the fees pushed the property into the negative and no-one wanted to buy it. Neither did we.
Make sure you find out about ALL the fees and charges, and weigh it up with any difficulty in onselling in the future.
Yes…it is the fees and charges that are killers.
I would not even think of buying one like that. Also, from experience, the values of these apts don’t appreciate much…to little to notice.
not worth the trouble.
Thanks for the info guys, what you came up with (High management fees, hard to get finance etc) were some of the things that I figured may’ve been the reason they were so “cheap”.
I’ll admit though though that I’m a bit depressed about this whole cashflow positive thing. All the properties I find aren’t even close to being cashflow positive.
PLEASE TELL ME THAT THEY EXIST !!!!!!!
Thanks again,
RodHi Rod. THEY EXIST!!!!!!! apparently.
Marty
Howdy Rod,
From a lenders perspective ‘serviced apartments’ are too hard:
1. If they are under 45 m2 living area (excludes balcony & carpark) no one will touch it, that I know, and most small serviced apartments are, so they need to be cash purchases – I think this is the main reason they don’t appreciate in value either.
2. If they qualify on space then lenders are still reluctant especially if income is from lease of your room only, ie not from pooled income of whole motel, because if you have a falling out with the management (eg over who pays to fix up a room trashed by a bad motel guest) then they won’t let out your room and you are dibbled.
3. Expenses as said above, including nasty little extras like clauses in your contract that you have to fully refurbish (carpets, curtains, furniture, bed etc) every five years – a lot of serviced apartments are on the cusp of this period and hence a big trap for unsuspecting buyers.If you are still keen and have done your due diligence and can put the deal together, the returns can be great – but buyer be very aware!!
That’s my two cents. Would love to hear from someone who actually owns one …?
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MelI have an investment in serviced apartments!
It is the Medina block in Brisbane overlooking the river.
The building is owned by a listed property trust called Tourisim and Leisure Trust ASX code TLT. They trade at about 58 cents they earn some 7+ cents and pay 6 cents distribution giving a yield of over 10 percent. The remainder is for refurbishment.
So there you have it a 10% return after all costs!
Dear xyzzy12
Don’t mean to be nosy but as a newcomer both to the Forum and property investing I am curious to know if you have had this apartment in Brisb for long?
10 months
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