Hi all,
As I was browsing through realestate websites and reading ads of new houses, I found that a lot of hotel management companies are (co-)building apartments in the inner city and let them out to investors with garanteed return at around 5% – 7%, and a few other benefits like no Body Cor Fee etc. I just wonder for an investor are these usually good opportunities? Are these investments commercial or residential? and, i can search on the web the prices of houses thus knowing if the prices have risen, but how can i know if such an apartment-hotel would increase or has increased in value? Anyone with any experience here? Thanks heaps!Cheers,
YCThis gets brought up every now and again, they sound good but can be fraught with danger!
1. It’s hard to finance anything under 50sqm (5 squares), I think the max LVR is 60%, have a chat to one of the brokers thou.
2. 5-7% for these are shit. There are plenty around going at 10%.
3. I’m pretty sure they’re residential, but with a commercial LVR ie 60%
4. You never own the property, just the rights to it. The hotel leases it back from you usually in 10 year stints, increasing it’s rent 3%pa or CPI. But they do go up as an investment, as normal.I’m pretty sure I’m correct in all I said, and I think they’re a good investment if you find the right ones, however, proceed with caution.
It’s usually the land that brings most value and that goes up in value – not the property itself.
In this case, you won’t find much capital gains as theres no land value to it.
kind regards,
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Thanks heaps for both of you! Well since i’m new to the property market I’d stay alert with those attractive ads and keep your words in mind!
Thanks again!
YC
“It’s usually the land that brings most value and that goes up in value – not the property itself.”
– The above statement is not necessarily correct.
The foundation of any property’s value is supply and demand. Limited supply of land will increase value, however, properties that do not have a direct land component will also appreciate in value if supply is limited.
Keep in mind apartments do have a land component in the valuation.
— Michael
” 2. 5-7% for these are shit. There are plenty around going at 10%.”
– correct, 5-7 percent is not generally considered a feasible ROI [return on investment].
3. I’m pretty sure they’re residential, but with a commercial LVR ie 60%
– apartment developments are generally residential; hotel developments are often commercial due to commercial amenities/services.
4. You never own the property, just the rights to it. The hotel leases it back from you usually in 10 year stints, increasing it’s rent 3%pa or CPI. But they do go up as an investment, as normal.
– typically in this scenario the apartments are constructed by an independent developer, another entity secures a lease or management contract, the apartments are sold.
If the transaction includes a title, then you own the apartment and can on-sell, etc, as you would any property.
“how can i know if such an apartment-hotel would increase or has increased in value?”
– you can monitor the market to determine if values are increasing, stagnant, or decreasing.
If you require a more accurate valuation, it is recommended that you employ the services of an “independent” valuer – who has experience in this type of property and management structure.
— Michael
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