Hotel apartment investment

Hi Guys,
I've recently come across an investment opportunity which is a 56sq 1 bedroom apartment, currently leased by Quest.

It gives a guaranteed 7% gross return (+ approx $2000pa rates etc) with 4x5yr options.

I've already read some archived threads on similar situations, so feel I already have a good handle on the pros and cons.

However, my main question is that if I feel confident enough in the investment in general, is this a good/the best option for my husband and I?

We are in our late 20's, have another property with a comfortable mortgage, and are keen to find an investment property to help us get ahead, or at least be helpful in retirement.
I believe this type of investment may be suitable, as the mortgage will be mostly covered by the rental return (which increases by 4% each year), meaning that we wont be making an annual profit (not our aim right now), but in the long term, someone else is paying off the mortgage, so even without much capital growth, we will end up with a good retirement fund...
If the hotel chain goes bust and the property ends up becoming residential, I'm confident the value of the apartment will be substantially above what we have paid.

I realise we may have concerns getting lending for the property, but that done, I'm just wondering what other option would be better, in that it pays off itself & looks after itself. I find it difficult to find a residential property that will do the same...

Thanks in advance for your thoughts!
 
Whoever suggested this to you needs to be spanked roundly with a wet lettuce.

Don't.

Forget the enticing yield. It's a mirage.

You will be slugged for all kinds of expenses along the way and your yield will be greatly diminished.

And when its time to get out, these sorts of properties are notoriously hard to sell BTW.
 
Well i appreciate your frankness guys!
Anyone else want to give their opinion.
Is anyone able to suggest other investment opportunities that would be good for a couple in our situation?
Thanks
Ashlea
 
I knew someone who looked into buying something kind of similar. Old hotel, selling off the rooms as an investment. They were still zoned as a hotel and that wasn't going to change to residential zoning so tenants couldn't stay more than 364 days = all short term leases = high wear and tear and less desirable tenants :).

It'll be unlikely that you'll find an amazing cash-cow investment, generally if it sounds too good to be true, it is! Why not look at something that is already tenanted with good tenants? You know your rent return, you know your investment is cared for by the tenants and you know that over time it is something that you can build on :).
 
As options to think about


A) A Sydney Metro House and Granny

7 % yield

Not easy to find but Jacque Parker of http://housesearchaustralia.com.au/ managed to do just that for one of our joint clients

B) 3 units on one title with strata opportunity on the Central Coast NSW, negotiated by Alan Fox of http://www.propertunity.com.au/ with an as is rental rtn of > 7 %


c) 3 townhouses on one title with simple strata conversion (making 100 k ++ equity gain) on the Gold Coast, and 7 % rental yield and massive depreciation dug out by Andrew Allen of http://www.allenrealestate.com.au/


All of these types of properties have the notional capacity to be purchase with a 10 % deposit, and have a wide market appeal.

While Serviced Apptment investments can be a great thing IF thats what you are looking for, a bit of elbow grease and education, or using a decent buyers agent will likely yield better CASH on CASH outcomes over the long term by at least 2 to 1

ta
rolf
 
I owned a hotel unit in Perth for a few years. It suited me at the time as I was working away a lot and the hands off aspect appealed to me. I did sell it for more that I bought it for, but only as people were accepting less yields by then. (5 years later)

The capital growth is really tied to any rental increases, which in turn is tied to CPI. Also mine had a dodgy operator. After 5 years when he renewed the option he was able to produce books that showed in the previous 5 years he had not made any money, and there was a clause in the contract that allowed the rent to revert to what it was 5 years before the lease was signed, wiping out all the CPI increases.

Long and the short of it : "Why would you renew the operating lease on a hotel that hadn't made money?"

Far as I know he is still the operator. I sold up and moved on to property where I can manufacture equity and have more control over the outcome.

Just a thought...
 
Hi

Quest leases are very comprehensive and all in their favour, obviously. Having said that if you just want a set and forget investment Quest is not necessarily a bad option. As long as you understand what you are getting into.

As I recall they will furnish paint manage etc. The rent is not as high as residential.

Your depreciation on the building is 4% over 25 years instead of 2.5% over 40 years.

If you had to sell when still tied in with Quest you need to consider this as they have this property for the next 20 years or so.

You can sell but the lease goes with it.

Regards
SG
 
If you want set and forget, have a look at Defence Housing. Compare that to the hotel lease, what are the differences.

If you want a better return on a set and almost forget property, you could buy a family home in a family-friendly suburb within walking distance to a decent school. The ideal tenants will stay for several years while their children are in the school. You can later self-manage when you work up the confidence. This is the easiest of our three properties.
 
These were offering 10% when we looked about twelve years ago. We decided against it when we saw there had been no growth whatsoever for at least ten years.

At your age would you be better looking at a capital growth strategy? It doesn't have to be very much CF-, but for younge people with a lot no time ahead I'd suggest looking at areas where there's a little scarcity and demand with a potential for growth.
 
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