Hi All,
I've found what looks to be a +geared property in the outer suburbs of a capital city. The Add as follows:
BUYER RANGED $150,000 – $180,000
Seize the opportunity to purchase this serviced apartment offering generous dimensions and stylish features. Securely leased to National Company until April 2011 for $247 per week with increases of 4% per annum (after 2nd year) plus further terms of 3 x 5 years duration. All outgoings paid by tenants including body corporate, council rates and insurances. Sounds too good to be true – secure your future and call today.
I figured out, even with a purchase price of $180 000 on a IO loan @ 7.25%, the repayments are $1087.50 compared to rent of $1093PCM.
Am I missing anything? I figure closing costs would be around $5200.
Any thoughts on this would be appreciated.
Gday zers,It looks like an advert from a developer, often they advertise this way to get more people to look and consider their property and with volume gain more sales opportunities. What guarantee do they give you that the tenant won’t or can’t move on?It definitely looks like the tenant is commercial considering they are paying all the bills?So is the rent being collected a commercial rent or a residential rate? Do your homework, check out the area to see what other simular properties are selling and renting for.Sorry I am always sceptical when people offload positive geared investments.It would make better sense to hold and profit for them selves would it not?Find out their motive to sell at such a good offer and perhaps it will point you towards an even better opportunity. 'Fear is a natural reaction to moving closer to the truth. Richard Denny. '
Yes, it is too good to be true!
These sorts of properties can have the following difficulties:
– Difficult to finance
– Hard to sell
– Low or not captial growth (due to the above)
– Restricted on selling agent and managing agent
– Rental guarantee meaningless if company goes down
– May be other costs that pop upHaving said that, some people buy more than one of these things so there may be something in it, but not my cuppatea.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It's not new, in fact, it's about 20 years old, rented by Quest Serviced Apartments.
I doubt capital gains on it would be astounding, but if you could make the numbers work, to me it sounds ok, though the returns aren't out of this world.
Terryw, what sort of factors would make it difficult to finance? From a Lenders perspective, what makes it unnatractive if it has guaranteed tenancy?
The guaranteed tenancy is what makes it unattactive!! Lenders realise there is no real guarantee and fear that the guarantee has been built into the price. though there are less problems with this with an existing building.
You would probably only get 70 to 80% LVR for a serviced apartment.
If you doubt capital gains would be good and rental returns aren't too good either, why buy it?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The other issue is the lenght of the lease.
Many lenders will not touch a property where the lease is greater than 2 years.
If they have to take possession then they are unable to sell the property to an owner occupier.
As Terry says dependant on the size of the unit you would be lucky to get 70-80%.
Richard Taylor | Australia's leading private lender
Had a client who bought a property with a rental guarantee a few years ago in Sudney. Not only couldnt they get a tenant but they also had to sue the developer to try to get their guaranteed income off him. Often there are clauses and they favour the developer squeezing out of paying any of the guarantees.
Both Terry and Richard are right in that they only offer a guarantee to spruke buyers. If they offer a guarantee, why do they need to?? Wont it rent at that level on its own merits? Anytime I see one like this now I suggest to my clients that other options could better suit their needs. There is usually good reasons why the offer is there for the guarantee and yes long leases are negative past the 2 year mark. The first as stated above and the second is that unless the lease has a CPI clause in place you cannot increase rents during the lease period. A lot can happen in 2 years and one thing could be several interest rates as we have just gone through. Imagine the impost on your pocket should you have to wear these increased payments yourself.
Keep looking, there are other options out there.
Good Luck and happy hunting.
DD
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