I am pretty new to investing but I recently came across a really interesting investment opportunity that got me excited.
The deal looks too good to be true and I want to get some ideas why.Here's the deal:
The common areas (gym, breakfast rooms, offices, conference rooms) of a hotel is on sale for around $600k.
There is currently a lease in place with 13 years to run. The lease is for $60k pa.
This $60k is essentially the net yield. There is nothing more to pay. It even says in the lease the hotel management is responsible for rates, body corps, insurance fees.
Rent is up for negotiation each year but it could never go below the initial $60k pa.The reason why this is up for sale is because the developers of the hotel building is currently in liquidation. So this is a fire sale essentially.
However, the hotel itself seems to be well managed. It is a fairly well known brand and the location is awesome.10% net yield? Too good to be true??
Am I missing something here?How are you supposed to make money out of it ?
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi Shadowcat
Just to clarify the scenario here –
It sounds like the offer is for you to pay $600K to be the lessor/landlord of those areas you mentioned, and you get paid a 10% return on your investment, someone pays you rent of $60K.
If that’s correct, there are a few questions that arise.
Who pays the $60K ?
What is your tenure or control or ownership – lease? Sublease?
When the lease expires in 13 years, how do you get your $600K back ?
Who gets your $600K now – the developer ?
How secure is the business in the hands of current operators ?
How strong is the trading position of the business itself in the marketplace, irrespective of operator ?
A 10% return for a lessor in the hotel or motel area is not unusual, often it’s more like 9%, but with only 13 years remaining to spread purchase costs like legals, due diligence and stamp duty (ouch) , it needs to be more like 10%. Ask Office of State Revenue how much stamp duty is payable on purchasing a $600K lease, it’s around $25K.It’s constructive criticism showing areas of interest by questioning.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
You must be logged in to reply to this topic. If you don't have an account, you can register here.
