While it seems difficult to find cash flow positive properties in the current market, I have come across some in place where I wouldn’t have expected. In the Melbourne CBD, you can find quite a few properties like the one below, that provide a net return of 6 to 7 %. Taking into account depreciation benefits, theses properties can be cash flow positive.
From the media, you can find positive and negative views about the area. There are rising construction costs in Melbourne that make it difficult for new projects to come onto the market. On the other hand, the Financial Review regularly presents negative stories about melbourne inner appartments. However, it is of a general nature and does not cover enough details about the Melbourne CBD.
Being from Sydney, it is a bit difficult for me to understand the finer details of the Melbourne market. I would expect that, being in the CBD, rising demand would create some capital growth. However, the area has shown little capital growth over the last few years, while most properties in Australia have boomed. The yields seem quite attractive though.
This looks OK in theory, but I am afraid I may have missed something. Is there a catch somewhere? I would like to hear from people who are familiar with the area.
Thanks,
CarLover.
CarLover
I think you’ll find that the catch with this unit is that it’s a serviced apartment. Historically there hasn’t been too much growth with them, the banks don’t like them – I saw a presentation from a NAB banker who said that 70% LVR is the highest they will go, and I think resales aren’t exactly easy because of the above points.
However, if you have the cash/equity, and want a set and forget investment, then they’re probably not too bad. Oh yes, you may be locked into updating the furniture every x years, and you cannot do anything personally to increase the value of your particular ‘apartment’.
Cheers
MelFrom what I saw, I dont’ think it is Positive Cashflow Property unless you are in the high tax bracket with high depreciation schedule.
Warm Regards
ChanDollars
[Keep going, you’re on your way to financial freedom]Hi Guys,
Just a query with that advertisement. It says the tennant pays body corporate fees and general maintenance. Is this the norm? I thought the owner usually paid these expenses.
Cheers,
Sue [
]“Be careful not to step on the flowers when you’re reaching for the stars”
Originally posted by diclem:Hi Guys,
Just a query with that advertisement. It says the tennant pays body corporate fees and general maintenance. Is this the norm? I thought the owner usually paid these expenses.
Cheers,
Sue []“Be careful not to step on the flowers when you’re reaching for the stars”
Look like a commercial property from ads
Warm Regards
ChanDollars
[Keep going, you’re on your way to financial freedom]From the advertisement, it mentions the Quest Group, who are a large chain of serviced apartments. I have seen this before, where they (Quest or similar) do pay all outgoings The only thing I would question is what capital growth you would get from this over the long term. My opinion is this would be minimal.
James
georgisj,
What makes you think that capital growth would be minimum?
Historically serviced apartments have not shown much growth – a bit hard to take when the rest of the area is booming[V]
Cheers
MelMany factors will dictate capital growth, however I base my opinion on the following;
1. Feedback from agents selling them
2. No land component
3. Usually very small in size (less than 50m2).
4. There are many serviced apartments that have come on-line throughout the 90’s.
5. There is a different risk level – reliant on the skills and expertise of the group running the complex. ie Quest (similar to commercial lease in that sense)
6. Smaller pool of clients/users versus traditional rental.Would be interested to know if anyone elses experiences contradict my thoughts
James
These can be good, but make sure you do all your Due Dilligence. Remember – you’re buying this on the strength of the lease. Otherwise, it’s just a very small apartment.
Recall the late 80’s / early 90’s when Banks were selling their properties. With nice long leases. Which they didn’t renew. Many got burnt.
You need to find out why they’re selling them, and what their long term plans are.
Be aware – finance will be an issue. Banks dont like them – they’re too small (the rooms) for normal criteria.
Don’t want to be negative here, just advising you to go in eye’s wide open.
Cheerio
Simon.
I’d be interested to hear what Steve McKnight thinks of the topic. I don’t recall any lengthy comments in his books.
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