Hi there,
(first time poster, so pardon my ignorance ).
I am considering purchasing an apartment in the city of Sydney (v close to townhall station). It is leased to a hotel, where the lease is to 2014 with a further 5 year option. ie there is a lock in period until 2019.
Rental yields are reasonable, with annual CPI increases.
I have read various commentary on people's general negativity toward these types of investments. Some of the arguments are about exposure to the hotel industry, which is not true in this case in that rent is CPI-indexed. It is true about the difficulty in borrowing. However, I have sufficient equity elsewhere to borrow at 100%.
My main question is what happens after the 10 year lease expires. The property is zoned commercial. Does that forbid the use of the property for residential purposes after the lock-in period is over? This is where I am getting some differring advice.
What I am trying to determine is whether the market value for this apartment is depressed only because of the 10-year lock-in? ie if I am willing to hold for the long-haul, in theory I should be able to realise some capital gain after 10 years because the apartment's value should converge to that of a regular 1-bedder. (I'm thinking about my kids ).
However, if there is no provision for the use of this apartment as residential even after the lock-in period, then the property will perpetually be difficult to sell even after 10 years, in which case I would walk away.
Does anyone know what the actual guidelines are?
Thanks in advance,
Flee
(first time poster, so pardon my ignorance ).
I am considering purchasing an apartment in the city of Sydney (v close to townhall station). It is leased to a hotel, where the lease is to 2014 with a further 5 year option. ie there is a lock in period until 2019.
Rental yields are reasonable, with annual CPI increases.
I have read various commentary on people's general negativity toward these types of investments. Some of the arguments are about exposure to the hotel industry, which is not true in this case in that rent is CPI-indexed. It is true about the difficulty in borrowing. However, I have sufficient equity elsewhere to borrow at 100%.
My main question is what happens after the 10 year lease expires. The property is zoned commercial. Does that forbid the use of the property for residential purposes after the lock-in period is over? This is where I am getting some differring advice.
What I am trying to determine is whether the market value for this apartment is depressed only because of the 10-year lock-in? ie if I am willing to hold for the long-haul, in theory I should be able to realise some capital gain after 10 years because the apartment's value should converge to that of a regular 1-bedder. (I'm thinking about my kids ).
However, if there is no provision for the use of this apartment as residential even after the lock-in period, then the property will perpetually be difficult to sell even after 10 years, in which case I would walk away.
Does anyone know what the actual guidelines are?
Thanks in advance,
Flee