Hello
I am looking for some feedback as to the following scenario. A room/ apartment in a hotel ( fairly large group) , guaranteed lease back by hotel , net return last year 655 per month. Cost approx mid 150’s
Are there any pitfalls with this type of investment , ie what happens if Hotel goes broke, problems with the hotel owners whom are obviously far , far bigger entities
Thanks
NSD
NeilSD
I asked a similiar question recently “Commercial prop (hotel room)” and the concensus seems be:
-May have difficulty getting finance, or using equity built up in to buy other IP’s
-May be diifficult to sell
-Management fees can be high
-Contracts may include hidden cost etc…Hope it helps…
Regards
Kelvin
[email protected]and replacement of furniture every …..years
Have seen on the net motel style accomm.for sale and owing to size, there could be a problem getting finance if you had to. I don’t mean studio units where there can also be a problem with some lenders. Have a look at realestate.com and click on Cairns – could be similiar sales listed. We have a holiday unit which we decided to permanently let, but previously the fees were considerable. It was a pooled situation.
AnnaG’day Neil…
Your biggest problem will be in trying to resell one day. You will be competing with the Agents that will be managing other “rooms” in the complex. Cause that’s all they are…just rooms.
I am yet to come across anyone that is pleased that they purchased an investment such as this.
( if that’s what u want to call it)Why complicate things? What is the attraction?
Bet the banks don’t like them. If they do lend I reckon they would want you to put up additional security.Better deals to be had, they might sound old fashioned, but ahouse is your best bet.
Guaranteed Rents??? This is factored into the purchase price…so it is overpriced at the outset. You want a guarantee? You pay for it !
In any case the return on the deal you suggest is terrible…may as well put your $$ on fixed deposit.
Cheers…
Bill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]Hi Neil,
Read the book. Do the sums. Steve’s 11 second gauge will show you it’s worth half the asking price if it’s cashflow you want.
Serviced appartments I understand have a low growth rate. So if it’s capital gains you’re after, be prepared to wait a bit longer than run-of-the-mill investments.
Neither scenario seems to fit. This leads me to the conclusion that you are chasing security of investment. A large group may offer a guaranteed return with no vacancy for a few reasons. When other rooms are vacant, your contribution (partly up front and partly ongoing) will cover that factor. Your “room” will be vacant at some stage, yet you will still receive your rent from pooled funds.
Other income can come from sub-leases by the group to say the restraunteur, bar, gym or whatever.
If you want security with someone else taking the risk, look to approaching Defence Housing. They will guarantee a tenant up to 10 years and even replace your carpet after vacating. Bear in mind your income is fixed for the term. You will not be able to enjoy market fluctuations dictated by supply and demand. You will not be able to be creative in looking to increase the rent. But if that’s what you want, aim for growth areas. Ask them what type of house they want, then buy it.
Regards, Phil
LuckyPhil, DHA appears to be a secure investment but they do have some break clauses in their lease. DHA are particular about the area and if the area becomes a high insuarance risk 3-5 Ys later or if undersireable neighbors move in next door, this can be used as an excuse to break contract. Also, the guaranteed rent comes with an overinflated house price to start with. I’ve known a few people who have bought DHA properties, but none of them have gone and bought more as a second investment. I think they are very similiar to service apartments as easy investments to get into but not always easy to get out of. I’ve also noticed there are quite a few of these unit / hotel investments in Perth, yet I haven’t seen many replies from these investors on this forum. There must be some people out there who have them and can put the pro’s and con’s forward.
C2
“Is it true the more you owe the more you grow until the bank steps in?”
If you are keen to buy serviced apartments/hotel rooms have a look at the Tourisim and Leisure Trust (ASX code TLT) They own own a block of 162 units in brisbane and after all fees and charges and costs and and and they are paying 6 cents on a unit in the trust that sells for 60 cents.
That’s a nett 10% according to my maths oh and by the way because of the depreciation the income is tax defered i.e. it’s not taxed as income rather it lowers your capital base.
Oh and you can sell part or all of our holding on the stock market quite easily without the fees and charges of owning a physical lot.
It you are looking for capital growth on an upgrade of a property try the Australian Hotels Trust (ASX code AHO) no dividend today because they are rebuilding the hotels. They own the Fairmont resort in Leura, Peppers Anchorage at Port Stephens and Peppers at Moss vale.
To me at least they are better bets!
C2 and Neil,
Thanks for the clarification on DHA homes C2.
I was unaware of the break clauses. My suggestion was to ask DHA of their requirements, then buy and modify a prop to suit. I’m aware that DHA own and release their rentals for sale. But I’m talking about buying your own privately to avoid an over-inflated DHA reserve price.
I’d be interested to know how they determine when “undesirable neighbours” appear. How could they execute a cessation of the lease based on that?
I mentioned DHA, as I figure that you Neil are looking for security of tenure. Fair enough too. It’s smart too look at diminishing your risk. Yet it’s difficult to balance that with a maximum return.
Kind regards, Phil
Hi LuckyPhil, Yes, DHA will lease a property from you but it can be a long process. A friend of mind tried back in 92 and after 3 different assessments was finally knock back 14 months later, although another friend had his property accepted in 4 months. He then tried to resell 2Y’s later saying he had a DHA leased. They (DHA) didn’t take this too favorably and he had quite a few problems later on. I would like to know if there is anyone on this forum that has done.
Hi xyzzy, thanks for that info. I wasn’t aware of it, and it’s not my forte, but I’m sure it will help some others.
C2
“Is it true the more you owe the more you grow until the bank steps in?”
Hi again C2 and Neil,
Human nature can be amazing. This thread started from your question Neil. I’m not even looking at DHA props myself, but do you realise where this has lead us? Info is valuable, and I’m sure that you see that no-one here wants to see anyone else make a mistake. Fantastic, proactive and success oriented.
I’m still amazed that we can be conversing with you C2 in Japan, for the benefit of locals. Thanks for your thoughts here.
Regards, Phil
Hi LuckyPhil, thanks for the nice words. I’ve received a lot of advice and assistance from people on this forum and are trying to pay some of it back.
C2
“Is it true the more you owe the more you grow until the bank steps in?”
HelloI am looking for some feedback as to the following scenario. A room/ apartment in a hotel ( fairly large group) , guaranteed lease back by hotel , net return last year 655 per month. Cost approx mid 150’s
Are there any pitfalls with this type of investment , ie what happens if Hotel goes broke, problems with the hotel owners whom are obviously far , far bigger entities
Thanks
NSD
Hi Neil,
I have tried this – they are great investments. firstly they are commercial leases, so no body corporate, they as the tenant pay for all of the outgoings, except for the rates and water rates – though they pay for excess usage. The annual increases are pretty good, usually 3% per annum. The banks love them – solidly built, guaranteed income, etc. If the hotel company sells up, then the incoming company usually takes over all the leases. The depreciation allowances are excellent. The tenant fully maintains the property and typically keeps it pristine.
We bought ours with $200, using our current property as partial collateral so we could finance everything, including the costs, and the property was still positively geared for cashflow, even without the depreciation considerations. As for profits, we made 15% or so after 3 years when we sold it. I wouldn’t have sold it had we been settled here permanently, but we are going overseas and I wanted to sell up our Australian properties to invest in England.
Great way of investing – the only thing I can think of even more hassle free at the moment is car parks.
Cheers
KatKADAB1
So you were very happy with yours??
Did you have any problem selling??Kelvin
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