I have a 25%share of a 1bedroom serviced apartment in Melb CBD. The loan has been paid off and we currently receive around $15000 per year in rental for the property. We have never had a valuation on the property and purchased it 10 years ago for $208k and I dont it would be worth too much more than this now. I have been interested in developing a portfolio using the positive gearing strategy and was looking for some advice on what would be best for all involved with the Melbourne unit.
Hi there
If you do a search for "serviced apartment" on this forum you will see lots of posts explaining why there has been little or no capital growth in your unit.
If it isn't going to go up in value, you really have two choices. Firstly, sell it and put your money into something that will grow in value. Or hang onto it for cash flow. While the return is around 7.2%, that's not really that awesome for an asset that is not growing in value, and is meanwhile ageing and will sooner or later require money for maintaining it.
If it were me, I'd offload it and sink my money into a property that gives the trifecta – growth, yield, and high demand for rentals.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Sell it and get rid of it. It is a crap investment, full stop.
An investment consists of money spent, time for outcome versus eventual outcome. This all revolves around how much demand exists for the current location and the property type. You may have an outcome to the positive on this .. but it will take A LOT of time.
And when it does come time to sell .. it will be hard to sell. How's that for an investment you WANT to make money off?Sell and move to something decent. It seems to be the unanimous position here.
Maybe we could be right?
Hi,
Thanks for all the comments. Will look to sell it.
Thanks
Benwhen you said you have a 25% share – does that mean you invested with other partners? can just sell off your share to the other shareholders?
Hi Matt,
Thats not an option for me and looking at best interests for others involved. Going to lok into selling possibilities if lease about to expire.
Thanks
Ben
Ben.I
Whatever you do .. make your next investment where you place yourself in the position of control. A shared concern is great but it means you cant borrow without really divesting .. and you cant sell because you have to vote all affirmative (or majority) to have it sold.
The problem with serviced and student is that there is control allocated to a hotel group or student management group. And your actual SAY in the place remains limited. Outside of that .. the fact that most are small and with limited lease tenures .. you are investing in someone ELSE's success. They sell you a dud with limited growth and .. they profit. They know that proportionate to the investment .. its possible to make a killing on these places. So they keep on building them. So the rarity of your place .. and therefore demand .. keeps on going down.
The BEST you can hope for is a consistant rate of return with a straightline on the capital growth. At worst .. you dont get your return .. you dont get your growth .. and due to excessive amounts of property on the market .. it actually goes backwards on you.
To put it another way .. there are some of these properties that have remained consistant for up to 8-10 years .. considering how my money has been moving in that period … you've been losing out big time.
Hi xdrew,
thanks for comments. Was a family investment and gave a small deposit while overseas a long time ago without looking into it. Didnt known it was a serviced apartment until returned few yrs later. SO much for research! Trying to fix up errors of the past which are occuring and are all evident and mentioned in your post. Currently trying to find someone to provide advice for my investing future. Been looking around site but cant find direct links to people. Im in syd at moment and finally in position to get things happening and want to get things set up correctly to start.
Thanks Ben
Do hotel groups require ongoing maintenance by the owners? If yes, generally how often, what need to be maintained and roughly how much in dollars term or as a ratio of the current market value of the serviced apartment? And what if the owner didn't wish to spend any further on the maintenance – do hotel management then cancel the lease?
thanks.
Hi Ben,
The average return you should expect per year is 8%-10% gross on a serviced apartment under a commercial or retail lease.
This wouldn't happen to be the Sebel on Collins? I'm in contact with a few owners of serviced apartments with the Sebel where the lease expiry is coming up and a lot are trying to sell to no avail. Where the lease is about to expire I see a great opportunity to do something different – fully furnished rental with a minimum 3 month lease & utilities included (capped, the tenant pays anything over the cap). The tenant pays for professional cleaning and some owners currently have a 12% return which is more than double current average returns for unfurnished properties. It depends who owns the furnishings – the tenant or the owner, but Melbourne Corporate Rentals runs really well for low vacancy and can arrange furnishings which presents a great deduction.
As always, it depends what suits your particular needs. You've got a property that may not be saleable now, but if you've got a lease expiry coming up you do have other options outside the box to make the property more attractive to potential buyers in the future.
Hi Kristin,
You mentioned about ‘when the lease is about to expire….’. Don’t hotel management usually renew the lease when it about to expires? What conditions are to met before they renew? And what sort of lease terms are generally given for serviced apartments? Thanks.
Jenny.
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