Hotel Appartments worth the risk?

From: Manny B

Howdy there,

I have found an apartment for sale that is under a 20yr lease to a hotel chain. The return is around 7% in the Melbourne CBD, being an older historical looking building. My question is the following:
As all outgoings are covered by the hotel chain, are there any risks to consider before venturing in such an investment?
Do the owners normally have to maintain the building? or is it normally covered by the Hotel chain?

Any questions or feedback on this would be greatly appreciated...

Thanx in advance,

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Reply: 1
From: Robert Forward

Hi Manny B

These strata hotel units are the same type of investment as the university apartments. Please read through those posts below to find out what info that you should be aware of.

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Reply: 2
From: GoAnna !

What costs you need to cover will be in the commerical lease agreement. It will vary from leasee to leasee. Another thing to check is how easily you are able to repossess the building should the hotel go under. And would the apartment be then suitable to rent out as a normal residential apartment or is it just a hotel room?

GoAnna !
(aka Anna before she got real)
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Reply: 2.1
From: Gee Cee Cee

What are you going to do with it in 20 yrs time.?

Will there be any growth or will it be just a box in the sky of a run down motel?

Gee Cee
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Reply: 2.1.1
From: Manny B

Hi GeeCee,

I will be speaking to the agent today to get more info, but apparently it is leased to the Oakford group & they have a 20yr lease (that is renewable)... I don't have all the details as yet, but all I know is that it is a Historic building (looks like it would be heritage listed as it is one of those old sturdy good looking building) which shouldn't be knocked down... I will be getting the details today so when I do get them I can post the information...


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Reply: 3
From: Michael G

The only thing I was told about serviced apartments is that companies can buy the rights.

Basically this means if you lease is with a big name, then this could be sublet to a $2 company with no assets.

The question here is, does who ever owns the lease have enough captial to cover the 20yr lease should they default?

A nice little claused would be that in the case of a default, the leasee pays for the cost of strating and you get the room/unit if it can be done.

Nice way of increasing the value due to a default ?

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Reply: 3.1
From: Paul Zagoridis

I perused the lease on a Hotel/Motel strata conversion in Chippendale Sydney. Units regularly show up in the papers for <$100K. It's between Regent and Abercrombie Streets, for those who've seen them.

Anyway buried deep in the lease is a clause allowing 28 days notice to break. Basically the operator can vacate the building on 28 days notice. After that you own a tiny ex-motel room.

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Reply: 3.1.1
From: Gee Cee Cee

They must all use the same paperwork.

Had a similar experience at least 8 yrs back .

I didn't really want to buy as I feel there are so many better opportunities out there.

(I like to be in control/ Not Controlled)

However I ran through some of the paperwork on a couple of motel conversions.

And as you say. If the operator goes into liquidation you can do all sorts of legal stuff. Throw good money after bad but what are you left with?

Gee Cee
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Hotel Appartments worth the risk? - 7% ??????

From: Anonymous

7 % !!
My spider senses are tingling

That is very low for a hotel investment !

Have a look at a few hotel/motel for sale

I'll be surprised if you find every deal no less than 10 %
and as high as 50% if you want to do it yourself.
If you are creative you can sub-lease or employ managers . DON'T be Boring !
Don't listen to anyone that says 7% is good,
for heaven sake keep looking !

The news papers on Saturdays under Hotel/motel for sale have some very good deals worth looking at from time to time.
Don't settle for only 7% , that's shocking!!

If you want a few motel sale websites reply and I'll post some I know

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Hotel Appartments worth the risk? - 7% ??????

From: Manny B

Thank you to everyone that did reply to my query, I have been put off the idea of the hotel/motel purchase, but would rather pursue what I currently have knowledge in, which is IPs...

Thanx once again,

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