[whistle]Any ideas on the following.
looking into investing in Hotel complex, where you buy one room (or more) all with seperate titles and then lease back to Hotel chain on a standard corporate lease ie. 5x5x5x5.
All outgoings are paid by tenant except body corp.
According to documents return works out to be nett 7.5%These types of investments are hard to finance, because usually they’re so small <50sqm, and if you can finance them you usually have to put up about 30% yourself.
Body corp rates on these can be astronomical, I’ve seen 60% of annual rent eaten by body corp fees.
The net return of 7.5% is nothing special for these investments, you can get a lot more in good places at 10% onwards.
However, I think as a hands off investment, they can cetainly be ideal if you’re after that sort of thing.Hope this helps…G7
Thanks G7 for your reply,
selling current property for the reason of increased body corp
With this property all body corp, rates, etc are paid by the tenant (ie Hotel group) so 7.5% nett is just that no extra costs at all, plus I forgot to mention annual increases of 3%
The critical point is the ability to finance these – lenders will not finance at 80% and as such growth and resale prospects are somewhat limited.
Don’t let the attractiveness of 7.5% seduce you into an investment that doesn’t stack up in the long term.
Derek
[email protected]Property Investment Support Available.
Think about what you want from an investment, and more importantly what your exit strategy is.
What happens in 10 years time when you want to exit your investment? The lessee still has a lease that has up to another 10 years to run.
Therefore you cannot give a buyer vacant possession. This will limit your pool of potential buyers to investors only.
Similarly if, in 5 years time you wanted to occupy the property (or one of your kids wants/needs to come home – you don’t want this, you’d rather they occupied THIS property instead), you can’t do it because the current lessee has control of the property for (up to) another 15 years.
Anyone investing in this type of property deal has to, in reality, be prepared to stay in for the FULL TERM of the lease (in this case 20 years).
What happens too if the 3% rent increases are way less than the inflationary rate?
These longterm lease-back deals can be quite restrictive. Be careful that their investment profile matches yours.
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