Hi Everyone,
Needing some advice below due to harsh criticism on serviced apartments on the internet.
The facts are below:
The serviced apartment is taken care of by a big hotel chain “Mantra”
“Currently rented at $2204.75 ($26,457p.a) per month and increasing by 3% per year with No Vacancy. Securely tenanted till 2015 with a further 2x 5 year options – I prefer having long contracts
The owner pays no Body Corp. Fee’s and the only outgoings are Water and Council Rates!
I have equity in my other property portfolio and should be able to get lending of at least 90% or full. I prefer paying interest only loans.
I have taken consideration of water, council rates and interest rates (max 7%) for the duration of 10 years (I have included the risk premiums).
The yield ranges between 2.75-2.85% over the 10 year period after taking consideration of risk premiums and outgoings.
Can anyone explain why people say it is a bad investment as per above? I may be missing information but can follow up on the chain later on.
Mike
Firstly most banks will treat this as a commercial loan so you will need a larger deposit.
Secondly capital growth on these properties does not really happen infact in some cases the values fall
The returns are not good
Now the purpose of an investment property is to get cash flow and growth since this investment does not do either why would you touch it.
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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What happens if Mantra don’t take up the 5 year options?
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Then you have a free and clear property
However
How big is it?
How many bedrooms?
I think that this is a bad investment, however how bad depends of my 2 questions
Also where is it?
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
Then you have a free and clear property
Yes, what I was getting at was what would the booking rate/ vacancy, fees etc be like then. Not as generous I bet. Then if you’re even able to let it out on a fixed term lease the rental income would be a lot less. Owner Occupier restrictions?
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Its a crap investment for numerous reasons with the main reason being difficulty in financing the property.
If the serviced apartment is under a lease which this seems to be then only St George, Citibank, La Trobe and Widebay will touch it and St George and Citibank have a policy whereby they will not financed more than 25% of the units in the development.
Property must also be fully self contained.
You will also have issues with valuation not just today but also tomorrow if you want to do equity releases.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Do you think a sub 3% return is attractive ?
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi Mike,
The yield ranges between 2.75-2.85% over the 10 year period after taking consideration of risk premiums and outgoings.
We usually work on Gross Yields when checking if a deal is possibly viable (it is a quick rule-of-thumb check). From your words, it appears you may be talking a Nett Yield of <3% So it may not be as bad as it sounds…..
e.g. Many on here would be looking for a 10% Gross Yield on a potential purchase. Of that, probably 5% will go on Mortgage Interest, and a further 1.5% or more on other costs. So something around a 3% Nett is not nearly as bad as it sounds. Especially as it is 3% on a rather large amount that is BORROWED !! :) I’d take it !!
Also, percentages hide a multitude of sins, and can be open to manipulation. e.g. like when Interest Rates go up 1% from a 5% base – the real increase to us is 20%, not 1% !!!
Why not share info re actual costs and values – the answers you get may be far more meaningful. Note, I am ONLY looking at the “numbers” here – I believe there may be other reasons that serviced apartments are not considered so highly, but I will leave that to others with experience of them,
Benny
PS And a big welcome to you on your first post !! :)
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