I have put a deposit on a unit in Sydney CBD and have been advised not to touch it. It has also been difficult getting a loan for it.
There are no outgoings as the management looks after it incl. council rates, water/elec rates, B/corp etc. The only outgoings is for GST management that they look after as it is required.
Furthermore there is even a guranteed rental agreement for 10yrs so there will be no vacancies for it and after that another 20yrs at 5 year renewable intervals. There’s a rise in rental after 3yrs and is also pegged to the CPI; whichever is higher ie. I have a + cash flow from day one. It’s even completely furnished and will be maintained by them.So what is the downside in it?? and why the difficulty with finance?
My lawyers are checking it out but on paper company is stable with a lot of other properties run the same way all over Australia and they have been doing this for a number of years too.
Any thoughts on it??? and pls don’t just say it sounds too good to be true. Some facts to your thoughts would be good as it fits all of Steve’s “advice”.
PatLow
Hello Pat,
These properties are hard to finance due to the nature of the risk. Banks stay away as a result of past failed attempts.
Whilst they do seem attractive, you will also need to consider the resale value. Finance will be a factor, as if you are having trouble financing then so will others. As a result, demand will be limited on these properties, along with the capital growth.
Keep a close eye on the purchase contract, as it may state that the existing management contract needs to remain in place if the property is sold. This will remove owner occupiers from your source of potential buyers.
Even though its best to buy and hold properties, you also need to be felxible enough to be able to sell easily.
David Femia
http://www.femiapropertygroup.com.auGood afternoon Pat
From what you’ve said I’d say the main reason finance might be a problem is that a lot of lending institutions are very wary of lending for CBD units due to the oversupply of units in the Syd. and Melb. CBDs. They are concerned that the oversupply could lead to a drop in price if vacancies increase and/or a lot of units hit the sale market at the same time. There are several reasons for their thinking but too long to go into here. If you want to e-mail me I can provide a longer answer for you.
However, given what you’ve said about their rental guarantees and without knowing your financial situation I find it hard to understand why you can’t get finance.
With regards checking up on the viability of the whole thing, I would ask the company for some referees both long term and recent clients. If they are legitimate, they shouldn’t have a problem telling you.
I’d certainly be interested in following up on this if you’d be prepared to give me the name of the company selling the units.
Regardless, good luck with them.
Best wishes
I have put a deposit on a unit in Sydney CBD and have been advised not to touch it. It has also been difficult getting a loan for it.
There are no outgoings as the management looks after it incl. council rates, water/elec rates, B/corp etc. The only outgoings is for GST management that they look after as it is required.
Furthermore there is even a guranteed rental agreement for 10yrs so there will be no vacancies for it and after that another 20yrs at 5 year renewable intervals. There’s a rise in rental after 3yrs and is also pegged to the CPI; whichever is higher ie. I have a + cash flow from day one. It’s even completely furnished and will be maintained by them.So what is the downside in it?? and why the difficulty with finance?
My lawyers are checking it out but on paper company is stable with a lot of other properties run the same way all over Australia and they have been doing this for a number of years too.
Any thoughts on it??? and pls don’t just say it sounds too good to be true. Some facts to your thoughts would be good as it fits all of Steve’s “advice”.
PatLow
[/quote]TQ guys for the input.
David: there’s nothing in the contract to say the rental has to be in place if sold.
They do arrange finance but give only 70%. I had hope for higher to spread my equity, know what I mean.
Nic: vendor’s – Austpac PRD. I had a bank rep give me a conditional approval for 90% after going through my docs but not for service units.Regards,
PatLowHi PatLow,
You may find that the room must be refit with new carpet, paint, etc every five or so years. The management gets the work done and the bill often goes to the investors. This should be in the contract.
I looked at a similar situation in Brisbane, but after having a long talk to some of the onsite management guys, I discovered that the rooms had depreciated almost every year since it had been built 12 years ago (very scary). The rent had gone up over this time, however.
Another thought that might be worth checking out…. if the place is trashed by a tenant the management puts in there, you may be up for the repair bill.
I liken this situation with that of a business… they raise capital by selling ‘shares’ (rooms) to build the place, and then pay the investors weekly ‘divedends’ (rent). Meanwhile, they run their business, with revenue (rent paid by tenants), expendature (maintainance, share paid back to investors and others) and profit (the difference).
Obviously, there are investors that find these arrangements attactive, otherwise they dont get built in the first place. I’d just say to tread carefully, as there are many of these units for sale all the time in Brisbane, which may not be a good sign.
The upside is that once you take the plunge there is very little contact with the place, just buy it and forget about it until you want to sell. No hassles chasing up tenants or anything, and like you said, no vacancies… ever.
Good luck in your hunt,
timMoney is an elastic resource, it can be created. Time is not.
Hi Pat,
I’ve bought an Apartment similar like the one you mentioned (mine is a 2BRM of the plan). Settlement day will be in January 2004.
The developer is going to place the Caretaker of the building in the Apartment. So practically it will be leased back to the developer but under a different company name (a $2 company?)
Location wise it’s very good, between a Shopping Centre and the Railway Station, 3 minutes walk either side. Restaurants and Cafes are in front of the door.
Lease is 1×5 plus optional 4×5 years.
Rent is 5% less then the normal rent for a new 2BRM apartment in the area, which is acceptable because there’s no need for a PM and no cost to look for other tenants in the future and for the lifetime of the loan.
There’s nothing mentioned about Bond money in the Contract though which according to my Solicitor is all right. Also I have to pay Rates and Body Corporate fee.
Unlike serviced apartments this is just a normal unfurnished apartment.
In your case you might pay for the renewal of loose furniture every so many years in the future probably.The price is lower then the usual 2BRM new apartments in this popular suburb in Brisbane.
(old price, about 30K difference now). It’s a High rise 8 storey building and located about 8 km from the CBD.So my strategy is Buy and Hold (Negative Gearing and CG) since I still believe that there’s still room for a price increase in the coming years especially because I got it for a lower price.
At the moment all the tax money I paid goes to the Taxman.I might sell it one day to another investor who also doesn’t want to be bothered by the task to look for good PMs and new tenants all the time.
Or I might keep and make it cashflow positive in the future?
Please let me know if somebody thinks I made a mistake here and any other comment would be appreciated!The down site re finance is because the apartment is leased back to the developer. The Financial Institutions just don’t like that. Don’t ask me why not.
But try Heritage BS., I have no problem to get finance from them through a Broker.
Later on I’ve split and restructured the loan, 80% IP and 20% PPOR (which has been paid off) plus LOC from 2 different Lending Institutions.Try that out if you still wish to purchase that apartment especially if it is cashflow positive.
Good luck!Please do a search to get more info from similar old posts. [
] Huey.Dear Tim,
Thks for all the input. It was great and answered some questions I had too.
Best regards,
PatLow
Hi PatLow,You may find that the room must be refit with new carpet, paint, etc every five or so years. The management gets the work done and the bill often goes to the investors. This should be in the contract.
I looked at a similar situation in Brisbane, but after having a long talk to some of the onsite management guys, I discovered that the rooms had depreciated almost every year since it had been built 12 years ago (very scary). The rent had gone up over this time, however.
Another thought that might be worth checking out…. if the place is trashed by a tenant the management puts in there, you may be up for the repair bill.
I liken this situation with that of a business… they raise capital by selling ‘shares’ (rooms) to build the place, and then pay the investors weekly ‘divedends’ (rent). Meanwhile, they run their business, with revenue (rent paid by tenants), expendature (maintainance, share paid back to investors and others) and profit (the difference).
Obviously, there are investors that find these arrangements attactive, otherwise they dont get built in the first place. I’d just say to tread carefully, as there are many of these units for sale all the time in Brisbane, which may not be a good sign.
The upside is that once you take the plunge there is very little contact with the place, just buy it and forget about it until you want to sell. No hassles chasing up tenants or anything, and like you said, no vacancies… ever.
Good luck in your hunt,
timMoney is an elastic resource, it can be created. Time is not.
TQ for the ctc for Heritage BS. Will try them however yours was not a service apt while mine is so….
Best regards,
PatLow
Hi Pat,I’ve bought an Apartment similar like the one you mentioned (mine is a 2BRM of the plan). Settlement day will be in January 2004.
The developer is going to place the Caretaker of the building in the Apartment. So practically it will be leased back to the developer but under a different company name (a $2 company?)
Location wise it’s very good, between a Shopping Centre and the Railway Station, 3 minutes walk either side. Restaurants and Cafes are in front of the door.
Lease is 1×5 plus optional 4×5 years.
Rent is 5% less then the normal rent for a new 2BRM apartment in the area, which is acceptable because there’s no need for a PM and no cost to look for other tenants in the future and for the lifetime of the loan.
There’s nothing mentioned about Bond money in the Contract though which according to my Solicitor is all right. Also I have to pay Rates and Body Corporate fee.
Unlike serviced apartments this is just a normal unfurnished apartment.
In your case you might pay for the renewal of loose furniture every so many years in the future probably.The price is lower then the usual 2BRM new apartments in this popular suburb in Brisbane.
(old price, about 30K difference now). It’s a High rise 8 storey building and located about 8 km from the CBD.So my strategy is Buy and Hold (Negative Gearing and CG) since I still believe that there’s still room for a price increase in the coming years especially because I got it for a lower price.
At the moment all the tax money I paid goes to the Taxman.I might sell it one day to another investor who also doesn’t want to be bothered by the task to look for good PMs and new tenants all the time.
Or I might keep and make it cashflow positive in the future?
Please let me know if somebody thinks I made a mistake here and any other comment would be appreciated!The down site re finance is because the apartment is leased back to the developer. The Financial Institutions just don’t like that. Don’t ask me why not.
But try Heritage BS., I have no problem to get finance from them through a Broker.
Later on I’ve split and restructured the loan, 80% IP and 20% PPOR (which has been paid off) plus LOC from 2 different Lending Institutions.Try that out if you still wish to purchase that apartment especially if it is cashflow positive.
Good luck!From personal experience, the downsides;
Very few banks like to secure serviced appartments for financing your next investment property purchase.
a) They ( Banks, you) sometimes have to give 3 months (sometimes more) notice of intention to sell to the the serviced appartment group (in a loan default situation). So the asset is not as liquid as a tradtional home.
b) Its a very narrow market to sell to as well. Usually when you sell, the remainder period of contract of lease is going to be transfered to the new owner.
In all the major capital cities, there is a over supply of appartments. Take that into consideration as well in capital growth terms. If the service appartment company goes bust, your “secure” rental contract means nothing.
A stumbling block maybe banks willing to touch you to finance your next property investment deal using the rental appartment as capital. Only bank ( in Adelaide) I can use is the NAB, they finance loans with serviced appartment as capital ( niche market for them).
Jason
Hi Pat
If you think its right then go with it. Just because apartments aren’t the flavour now doesnt mean they wont be in the future.
CBD buying is cheaper than suburbs at the moment long term this may change too. This apartment phenomenan in relatively new here compared to say USA. We are becaoming Mahnhattanised try and buy an aprtment in Mahnhatten for under half a million.
Even Robert Kyosaki is favouring CBD investment in his new book from what i have been told.
Happy to have some communication on this as i have a townhouse but use it in the manner you have described. There are somethings in the lease you need to be aware of.
Even my lawyer said it was ok normal for these sort of deals. I disagreed it want comfortable with me.
regards
alf
[email protected]Hi PatLow
Even though the rent is guaranteed, this rent has normally been added into the price. The banks are aware of this and normally want a higher deposit to compensate for the overinflated price, but not always. If something goes wrong it is harder for the banks to resell and recover their losses. I would suggest you contact one of the brokers on this forum who may be able to steer you in the right direction. I would also suggest you check the treasure chest where there is a lot of information about the pros and cons of service apartments.
C2
“Is it true the more you owe the more you grow until the Bank steps in?”
] Huey.
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