I found a hotel unit in a 4.5 star resort for $150,00 but can get it for $135000. It returns $13500 net minus rates $1200 and insurance $400 after hotel tennant pays all other outgoings and any damge or refurbishment. It has 10 year lease + 10yr option. Its for sale from the second owner so developers margins etc should apply.
Seems like a good deal to me.
Using McKnight calcs it has C on C returns depending on my deposit as tabled below.
Deposit % Post Tax Earnings Deposit ROE
1% 3552 $1,350 263%
10% 4190 $13,500 31%
20% 4899 $27,000 18%
30% 5607 $40,500 14%
40% 6316 $54,000 12%
50% 7025 $67,500 10.41%
60% 7734 $81,000 9.55%
70% 8442 $94,500 8.93%
80% 9151 $108,000 8.47%
90% 9860 $121,500 8.12%
100% 10569 $135,000 7.83%It easily passes the three second or 11 second rule but may pass or fail the Danger Money multipier or Double interest rule depending on the deposit levels.
As far as scarcity goes its in a great location with river views within 2 km of a Capital city CBD. So its possibly not so scarce at the moment but will definitely be in the future as CBD proximity and river views become increasingly more difficult.
Given the tennant is the asset, tennants dont come any better than this and they repair any damage with the hotel customers credit card.
Ta.
All sounds pretty good to me.
No land component – wouldn’t touch it with a barge pole…
Forget the cashflow side for a minute…..what do you {project / think / believe / guess} it will be worth to you in 10 years time ??
I hear what your saying about land component, but thats only a one of amny strategies. And I know land appreciates while building depreciate. If land component was the only way to get Rich than why does Robert Kiyosaki own almost 90%+ units rather than houses and twnhouses.
So given this bulding was built in 1996 and 9 out of 10 years rent has increased by between 4% and 14%. Im banking on the fact that the property will rise based on its rental increases. It has an international Brand hotel in a one of a kind location that they arent going to walk away from. The Hotel has already refurbished the property once at their expenses so i gues you could say the building hasnt even depreciated.If the rent is currently $13500 and purchase price is $135000 thats approx 10% return so if rent appreciates between 4 and 14% say take an average of 7% then in 10 years rent will be $26500pa or at 5% growth rent would be $21990pa. So if 10% yield was enough to attract me then it should be enough to attract someone else.
On that basis in 10 yrs the property would be worth $219,000 to $265000 and by then would have netted me $60000 plus CF+ based on no cash down. If i put cash down then even better.Sounds defensive but im telling you my justification for it to be critically examined. So go for it if you reckon thats rubbish. Id like to hear it, doesnt mean i will follow it, but i wnat it critically evalluated.
Ta once again.I hear what your saying about land component, but thats only a one of amny strategies. And I know land appreciates while building depreciate. If land component was the only way to get Rich than why does Robert Kiyosaki own almost 90%+ units rather than houses and twnhouses.
So given this bulding was built in 1996 and 9 out of 10 years rent has increased by between 4% and 14%. Im banking on the fact that the property will rise based on its rental increases. It has an international Brand hotel in a one of a kind location that they arent going to walk away from. The Hotel has already refurbished the property once at their expenses so i gues you could say the building hasnt even depreciated.If the rent is currently $13500 and purchase price is $135000 thats approx 10% return so if rent appreciates between 4 and 14% say take an average of 7% then in 10 years rent will be $26500pa or at 5% growth rent would be $21990pa. So if 10% yield was enough to attract me then it should be enough to attract someone else.
On that basis in 10 yrs the property would be worth $219,000 to $265000 and by then would have netted me $60000 plus CF+ based on no cash down. If i put cash down then even better.Sounds defensive but im telling you my justification for it to be critically examined. So go for it if you reckon thats rubbish. Id like to hear it, doesnt mean i will follow it, but i wnat it critically evalluated.
Ta once again.I am having some trouble with the outgoings…
What about Body Corp Fees?
What type of tennant are you expecting to attract? Short termers 3-30 days or Long Term tennant?
I am assuming a 4.5 Star Resort will bring in short termers…
So who owns the furnishings – Tables, Beds, couches knives and forks?
I don’t understand how a tennant is going to pay for the refurb?
Who fixes a light bulb – at what cost?
Tim
The hotel has it in a leasing pool they pay all outgoings except rates and insurance.
I own would own the unit and its contents. But they have an ongoing agreement that they will refurbish it while ever it remains in the pool.
The Hotel is the tennant for me.
It has a 10 year history of strong sustainale increasing returns.
As far as land content it has 300 rooms and is located on over 19000m2 of absolute prime water front land in the CBD of a capital city. So technically it has approx 60m2 land content of CBD land at approx $2500 -$3000 per m2 = $147,500 to $177,000
It comes out at 10% gross yield, 7.6% net yield with great rental growth.
Im not after an active property at this stage as im too busy woorking and trading shares. I want a passive solution. And as far as passive solutions go this seems pretty good.
These kind of investments are available in Canberra. I’ve seen them advertised around the 120k price and I recall seeing them about 2 years ago for 100k so they do seem to have a good capital growth as your example also shows. I’ve never got into this type as I’m more focused on the land as others have said. It does look like a good investment with positve capital growth and yield returns. Personally I tend to keep away from having too many properties as the dealing with them all is a pain so I go for fewer/more expensive investments but not many can you buy these days that give you the 10% yield and 10% annual growth. Looks good if this type of invesment suits you.
CarpeThanks
Yep i was land focused to originally but then i realised its a continuum form negatively geared 100% land content to houses to villas to units to serviced apartments that have little land content but are generally very posiitively geared.
I understand the importance of land content as i currently own my own house on 1000m2 and a block of ocean view land 1495m2. Both have doubled in value during 2001 to 2003. Based on neiighbouring sales.
At the other end of the spectrum though some serviced apartments do have a percentageof land conntent. And whilst small the land contnet is generally prime real estate in scarce locations with massive land values per m2. Refer to my previous post.
Also the serviced apartment is so positive that it easily allws me to buy multiple properties with ease.
The biggest draw back is the fact that it chews up my equity as it cannot be leveraged against as i cant find a lender that will lend against apartments of 39m2.
G’day condog,
I don’t really need to give you my opinion. You answered your own question. No lending body will touch it. That’s your answer, if they won’t get involved, neither should you.
I was badly burnt with serviced apartments. They are over priced. You’re paying your own rent for three years.
That’s the time frame for the financial side of the contract .Then it’s a new ball game, with them making the rules.You say you have a ten year lease, but that ten years doesn’t cover
the financials. Only that they will be managing the property for that time.
Unless they sell their contract to another party. As happened in my case.When the “management” decides to make changes, they don’t have to ask. They just do what they want. To hell with you.
The worst two things about this kind of investment is :-
One, you will lose money.
Two have absolutely no control over your investment.I would never recommend serviced aprtments to anyone. Not ever !
bruham.
Thanks for sharing your experience.
One major difference in my situation to yours is im buying of private buyers who bought the property some time ago and have been more than happy with it but need money to move on to a different investment.
Im not buying form the developer or the hotel so those margins dont apply. I also have a 10 year rental history to judge the returns rather than claims from the developer.
Im led to believe by the Westpac Hotels report that any hotel taes 3-5 years to establish reasonable returns. This ones been operating for 10 yrs is an international brand and in absolute prime location. In fact id dare to say it has the absolute best location in the whole capital city.
Having said that i am cautioned by your experience and that of others. Hence the reason for me posting in here.
The numbers stack up. But id prefer to here from others with their ideas and experiences.
Thanks greatly.
I’m with bruham on this one condog.
I have never bought a services apartment, as I heard a while ago that you are at the mercy of the management company who have the management rights.
They can go broke or sell the management rights to someone else which can greatly affect your rent return.
Also, the outgoings on these investments can be quite high, so you would want to get a complete list of them first.
There is a very good section on managed apartments in one of Margaret Lomas’ books (can’t remember which one). She points out the pros and cons, and to me there were more cons.Cheers,
Marc.
[email protected]Hi Condog,
That post you put in about the land content that is very interesting how did you work that out those figures ?
Please explain !!!!!!!
Thanks karlmTheres two ways. Neither is entirely accurate but both will give a good indication.
The first is to work out the Total land area of the site.
Then take the number of floors and floor area on each floor atttributable to apartments. Multiply it out to see how much floor space the total building has. Take off 4% for retail / lobby leasee.Then divide your floor area into this. Thats your share of the total land content.
The second and easiest way is to simply divide the total land content by the number of apartments in the building. Give or take a bit if you have an extremely big or extremely small aprtment.
If your still considering deal, I’d have a solicitor run over the fineprint.
Sorry don’t want to be picky but:
1) Yes you will find a lender finance a 39 Sq M unit albeit a a lower LVR and maybe higher rate but can certainly be financed.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
So do tell who lends and what rate.
If something sounds to good to be true .hmmmmmm. you know the rest.
If it is such a good thing it would not be offered to you at such a discount even if you are a good friend to the seller.
My advice, for what it is worth to you:- Get a room in the building for a night, get a nice bottle of red or 3 and enjoy the night. Next day check out and find a better investment!
All the best.
[cigar]
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