Hi all, I'm looking at purchasing my first IP and I was looking on realestate.com at places in melbourne CBD between $100,00 and $200,000. Much to my suprise a lot of serviced apartments came up. With doing no further research it looks like the hotel sells the apartments and gives an approx of the yearly return with the hotel looking after the various fees ie body corp, water etc. Some of these would be CF+ for me, returning about $40 a week once the loan repayment and other associated fees (if any) are taken out.
Has anyone had any experience with this type of thing? It seems that it's good as an income earner, but my concern is the growth, would there be much capital growth with this kind of investment?
Thanks in advance!
Again with the hotel investments…..
Just do a quick search on this topic and throughout the forum you will find the threads littered with the bodies of those who thought this was a good idea.
Please, please, please think carefully about this sort of thing as an investment, for a variety of reasons, lack of bank lending, no control over costs etc, etc, etc.
Good luck finding something
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeThanks for the reply! This past fortnight I've been reading pretty much every post in this forum back to 2006 but for some reason I don't remember reading anything about this topic. Aaanyway, have now used the good ol' search function.
The saying "If something is too good to be true, it usually is" springs to mind for some reason…..
HmmmmAt least you are doing your homework and are responsive to changing your mind, you'll go a long way with that! Cheers!
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeHi there.
Dwolfe has given you some good tips. I will try to add a little from my own investigations (we've all looked into this type of investment!). Basically as mentioned, they are managed by an organisation (hotel group, retirement village, university accommodation company, etc. etc.) and they take their profit before you get paid. This is probably fine when all goes well, but I have found some that haven't been doing so well due to the GFC, specifically holiday units. There is nothing much you can do when you own one, but sell. You can't renovate or control the rent as with other property.
That leads to the issue of who will buy. It is always better to have something that will attract a range of buyers, e.g. different types of people who might want to live there, invest, etc. These types of things attract investors so you are locked out of a lot of the buying market. Then there is the size. They can be quite small. This and the fact they are usually classed as a commercial type property in the eyes of the bank means they require a bigger deposit from you.
One particular investment we looked into comes to mind, Unihouse, in Adelaide. About ten years ago they were selling for $114-$130 and they are only attracting about $50,000 more now. Not a good result compared to other properties.
Having said all this I know some people buy them because of their cash flow.
Good luck researching,
G
These sorts of investments have been referred to in threads on this forum under "serviced apartment". Search under that and you'll find plenty to read. The general idea feeling is, they don't seem to have sufficient capital growth.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Pleiades,
the main issue you will find with this type of IP is that the banks aren't keen on them, so you will face difficulties in borrowing. Either your LVR will be lower than for a straigh-forward IP, or your interest rate higher, or a combination of both. The yield looks very attractive, but given that only investors will buy them, your potential market when selling them will be smaller, and therefore the banks don't like them. So you will need a much bigger deposit that might be better used elsewhere. They are a good investment if you have a lot of cash lying around to buy them outright.
To give you a commercial property investor’s perspective on this….
If a sophisticated property investor (like a listed property trust or similar) were to acquire a hotel property, say a serviced apartment complex in a CBD, they would buy on a NET yield of around 8-9%, as this is reflective of the risk premium attached to tourism properties.
Developers try and sell you these units on a gross RESIDENTIAL yield of around 4-6%, which is NOT reflective of the additional risk you incur with a tourism property.
The difference is yield spread here is pocketed by the developer as a super-charged development margin!
Furthermore, you are open to management risk (how good are the operators?).
Hope this helps…
Generally this kind of properties are charged higher management fee, one of the university accommodation we looked into charge 12% management fee. Normally when they try to sell it to you, they quote the gross rental which is before taking out the commission.
Also, as everyone has mentioned, banks don't like them. especially with studio or uni accommodation where the unit internal area is as small as 20-40sqm. I seriously doubt any bank would lend at all. most of the investors have to pay 100% of the price.So if you do the calculation assuming no lending, then take away the 12% management fee, that is the true cashflow u look at. then you'll understand why Dwolfe is saying be very careful.
About 6 years ago, I was wondering if the serviced apartments were a good investment. I looked at one as my "case study" at the time… it was on the market for $178k. Looking at the real estate websites, the same sort of thing is now on the market for $180k. So a whopping $2k of growth in 6 years. Eek. In effect, the thing is losing money, because its value certainly is not keeping up with other properties, or inflation. Imagine if I'd bought such a thing with the intention of selling it upon my retirement to fund my living costs for a while. By my calculations, based on what things cost now and what they'll cost in 30 years, I'd have been able to sell the thing to purchase a small hatchback car upon my retirement. Great. So basically I would have forked out $180k to swap it later for a car worth about $20k.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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