Hi all,
I have noticed several individual hotel rooms advertised for sale at CF+ prices. They are leased to the hotelier, e.g Nova Stargate, with CPI or similar lease rate increases for the period of lease. They also usually have several option for lease extensions e.g 3x 5 year options. I am trying to understand the risk/reward profile of these. I see it as follows….Pros:
1) low/no maintenance
2) CF+
3) No Vacancy
4) The room is less likely to get absolutely trashed
5) No outgoings (sometimes)
6) No agent feesCons:
1) You cannot live in the room
2) Given its lack of owner occupier appeal, capital growth is limited to be roughly in line with real return growth (around CPI levels).
3) Lease option not being taken if room is not wanted by hotelier in the future. Either because they want to scale down operations or move to another building.Other Uncertainties:
1) Will there be loan issues, e.g. lower LVR or even a commercial loan rather than a residential mortgage.
2) Who pays for renovations and who decides the cost/price of these if it is the freeholder who pays.What else have I missed???
All input appreciated,
Cheers
You will have problems getting finance. These places sel lwith higher yields as they are unpopular. Make sure you know exactly what you are getting before you sign any contracts. Some pretty slick salesman are employed to sell these.
i would counsel against them myself but I am no advisor ….
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Any more opinions/experiences out there?
I bought one in Perth as my first dip in property investing. Usual deal with 3 years remaining on the lease plus 5×5 options. When the lease came up for renewal in 2005 the operator was able to produce figures to show he was not making any money so due to a clause in the lease he was able to revert the rent back to what it was in 2000 when the lease was signed. This turned me from cash +ve to cash -ve, so I sold up. I was lucky to make money on it as people will accept lower yields now.
At the time I bought it suited me as I was working offshore a lot and the hands-off aspect was attractive, but now I spend more time at home I prefer properties where I have more involvement.
I hope this has been of help.Hi attrill,
Thats interesting. The lease option price is based on market value, not whether the client is making money or not.If you can prove the market rent should be higher than you have a good case to reject their offer.
It must then go to some sort of tribunal?
I have not gone through the process with hotels but do have some several commercial leases and I cant see how the lease option could be based on client profitability.
But thats not the point. I agree with current comments, you have 100’s of independed thinkers (lessors) vs the 1 hotel which makes it easier for them to change the lease.
Mat
Thanks for the input guys,
What operator have you got leasing your hotel room attrill?
CheersI looked at some on the market in South Perth & found the following:
• The returns were not flash
• The bank wanted a huge deposit
• The past growth was average
• The future growth was very speculativeSubsequently I spent my money elsewhere.
This topic was discussed recently & there were some very informative posts.
You may want to do a search.
[cigar][cigar][cigar]David
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