Anybody bought a serviced apartment?

J

Jamie_D

Hiya

Just wondering whether anyone in the forum has purchased a serviced apt and what experiences they wish to divulge - good or bad?

I am familiar with LVR restrictions with banks however do these investments provide growth potential and are easily sellable in the future.

Your thoughts are appreciated
 
I'm looking at this as a +gear +cash flow addition to my portfolio. One that I'm looking at has only 5 years to run on it's contract, so after that, it can revert to owner occupied, which should, then, pump some CG into the equation.
Are they easy to sell? I suspect not. One I'm looking at has sold twice since October last year and each time the contract has fallen through as the buyer had difficulty getting the finance option they needed. If they had $100k in cash to throw into the deal, then they would be OK.
I'll watch this thread with interest to hear the experiences of others.
 
I'll be watching too Rob...and thanks for your input.

The option to convert to residential is ideal however the one I'm looking at has an 18 yr contract

I know of a development in Sth Yarra that my clients bought into which has the option to switch to resi after 5 yrs
First 12 storeys are serviced and the remaining 10 storeys are resi
very nice and settling in next 2 months

thanks again big guy
 
I had a motel unit as my very first IP. It was cheap and suited me as I was working away a lot and it put $50 a month into my pocket. At the end of the 5 year lease there was a clause that if the operator could show he wasn't making any money the rent he paid could revert back to the level it was 5 years before.

This is what happened and so overnight I went to losing $50 a month. I sold for a profit, but only as people were accepting lower yields. Now I prefer property I can tinker with to improve the return.

There is another 5 year option and then the owners can take it back, which should see the values rise, but I would be wary about taking on another one.

What I learnt was to read the contract VERY carefully.
 
I am probably now in the boat where I should have read the contract more carefully..

but im in my first year ive held my first IP, and due to the interest rate droppage i am now creeping to about positive $100 per week (after strata/interest). i will be very interested to hear other people's experiences on this issue as i too believe that it will be hard to sell this serviced apartment when i need to (3-5 years, hoping property will bounce back).

im paying P/I (principal and interest?) and as a newbie, want to pay off a mortgage as soon as possible. Is this a good idea as since its a + IP, i have no tax benefits from owning this and paying I/O?

(btw this was my first post =)
 
Most serviced apartments have a 70% LVR and are harder to sell. They're essentially commercial residential.

Better to buy it as a normal apartment and then convert it to a serviced apartment if you can. This is possible in buildings that have a mix of normal residential and serviced apartments.

One of my tenants is the building manager of a serviced apartment complex in Brisbane. He's doing it tough in this current economic climate.

Good luck!

-- MJ.


Good luck!
 
To answer your question no we have never bought a serviced apartment because in our view it is not an investment but rather a liability with plenty of downside disadvantages and very limited upside.

The first concern is that you don't have a freehold title but at a Strata title.

The second is you are tied to a body corporate with a lot of small minded individuals who think like managed fund investors;)

Third is that you have a service company who are in the business to hoover up your profit at every opportunity.

Fourth you are not in control of your investment but are responsible for all the fees and charges that occur because of a collective stuff up.
 
im in the process of buying one in sydney cbd and yes when selling its kinder hard because finiance is a major killer, the buyer will need around about 100k in savings just to get started.
 
BUFFBOY said:
im in the process of buying one in sydney cbd and yes when selling its kinder hard because finiance is a major killer, the buyer will need around about 100k in savings just to get started.
Click to expand...

Want to tell us a bit more about your deal?
I've been looking at one in Melbourne CBD. It's been on the market for ages. Like you say, when the buyers look for finance they find they have to come up with a big cash component. Twice it's been sold and fallen through for this reason.
On the positive side, that gives me a very motivated seller and an opportunity to do a much better deal.
I don't plan to sell it. I'm looking to buy in my SMSF and let it revert to resi in 5 years time. From day one it will put my in my pocket (woops my SMSF pocket) and after I hit my preservation age, I can draw down the rent income as tax free income from my SMSF. I also have the option of selling it CG tax free and there will be big CG as it will be resi by then.
So whether something is a good deal or not really depends on your circumstances, objectives, risk profile and (hesitate to say it) age.
 
Hi

I bought a torrens titled townhouse in the cbd in a mixed group ie residential and serviced.

I furnished it and leased it to the company that was there.

I then went residential and have leased fully furnished ever since. No problem refinancing to 80% LVR.

Just make sure you have an exit in the lease with the company as they try and tie you into the lease with no exit for the lessor.

Cheers
BC
 
There's a few threads on the forum.
I bought a 1 bed in Bris in 01 and sold in 06.
Many good points, many bad points, like anything else.
LVR will depend on the size of the unit, and <50sqm main lenders wont finance.

Take a very close look at what the bodycorp has been doing and the meeting's minutes.
 
A few serviced apartments can be good investments but largely they are a nightmare. Read the contract and attached agreements VERY VERY carefully and understand every single clause before you commit. If you decide to buy, read the contract again..... you must have missed something. :)

However, Rob's comments are valid and there are exceptions. If your timing is right, it fits your strategy and is not tied to a long term agreement with the management company then some are worth considering.

They are definitely a commercial residential investment and most have no flexibility, all the control rests with the manager. Also look carefully at the net income. The gross always looks so good but the outgoings are huge, not to mention the regular refurbishment necessary to keep the property up to a good standard, both within the apartment and the common areas.

Ensure that the property can be used for long term residency. Do not buy anything that can only ever be short term let. You will regret it.

Yeah, I learned the hard way ..... twice, I'm a slow learner!
 
I think I may have gotten myself into some kind of trouble. This is my first IP and I probably should have read the clause abit more cautiously and done a lot more research into it. I have just recently bought a service apartment in Melb which is due to complete some time this year. I was attracted by the rental guarantees, minimal maintenance commitment, excellent location, reputable commercial tenant company etc..... and after reading this forum, I cant help but to feel i'm kinda trapped.

Under the clause for 'Grant of new lease', it states that 'If an Option Term is specified in Item 7 of the Reference Schedule, the Landlord must grant to the Tenant, at the Tenant's cost, a new lease of Premises of that Option Term if the Tenant gives the Landlord written notice during the Option Exercise Period that the Tenant wants a lease if the Premises for the Option Term'.

Item 7 has 5 options, of each option of 5 years - hence, a total of 20 years.
(20 years.....!@#$%)

What I'm worried is if in the next few years I would like to sell this apartment, the likelyhood of selling it given the low LVRs, may just dampen the chances. I have also read that that commercial serviced apartments have low appreciation rates, is it true?

I apologise in advance if I sounded like a newbie, cos I am. I'm learning as I go along but perhaps, I should have paid more attention earlier.
 
Find a conveyancer or solicitor who is well versed in these types of contracts for that state as the contractor is key to what you are buying into and what you can and cannot do with the property.

The better apartments tend to be where there is mix of serviced and general or where the serviced come out to a general in a staged manner rather than all at once.

Take a good look at the strata and ensure that there are enough funds in the sinking trust.

Like everything, do your research.

Good luck.
 
Thanks chilliblue. One mistake (i feel so stupid cos I know I should have done it) is not seeking solicitor advice prior to anything. And worse, I have already paid my 10%. All the research I have done thus far, points towards the exit door when it comes to investing in serviced apartments.

Now all I can think of it to try and get my 10% back. I'm stumped not knowing if I will ever see the 10% back again if I pull out (I am seriously wanting to pull out of this one, rather to suffer big losses in the end).
I can only beat myself for being so naive.

Has anyone successfully gotten back their deposit back upon terminating the contract?
 
Just an update .... After much consideration, I am keeping the apartment, regardless. My initial plan was to keep it long term (ie. 15 years or more). It is an investment afterall, I'll take the risk. Nevertheless, I did learn alot from this. I'll admit how astounded I was to see how many ran away from serviced apartments based on various reasons in consideration, and to me, it did raised the red flags. I was petrified to say the least, hence my posts. And hopefully, in 15 years' time, this investment will not turn out to be a costly lesson. :)
 
Last edited:
"the other side"

My company operates serviced apartments on the NSW mid north coast & I can assure all sceptics that there are exceptions to the rule! a lot of what is said above is true but the truest words are check the true net profit after all costs & double check the management and letting/caretaker agreements (the managers can be checked out mostly for under performance given a majority) for yearly increases in fees but most of all meet the Managers and make at least some of your judgement on that basis!
 
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