Serviced Apartments, are they worth it ?

Hi guys, being new to Somersoft and also new to the property game i am not sure whats the best way to go about things.
I am currently looking at a serviced apartment that has currently got about a 20 year lease on it, what are some pros and cons about becoming the land lord of a serviced apartment?
And why do the banks make it harder to get a loan on a serviced apartment.

Thank you.
 
I recently enquired about serviced units in a resort at Nelson Bay. It was a dual key 2br with a huge pool. Cost about $250K with $20K return. Agent forwarded paperwork and it looked legit. Owner can only use unit 4 weeks per year. Had 80% occupancy. Didn't proceed coz of gut feeling.
 
Pros:

1. Great cashflow

Cons:

1. CG growth is weak
2. Finance is bloody hard when comparing to 'normal' houses
3. A Firesale in the complex and you are stuffed in terms of refinancing
4. Accessing equity is tougher

Happy to put you in touch with all my clients who have purchased serviced apartments but I can save you the time by saying that they would warn you against buying.

Regards

Shahin
 
Not all serviced apartments are created equal. Some are great, some suck. It depends on the type of lease arrangement you have, and what happens when the lease expires.
 
A normal unit that isnt bonded to a lease can produce just as much cash if properly managed, and thus is subject to normal LVRs

Quite a few SS folk have one or many of these beasties that they run themselves


ta
rolf
 
Yes those are the ones that can be used as PPOR. Many serviced apartments have clauses which can only be used as IP's. This is one of about 100 problems associated with SA's.

Regards

Shahin
 
Hi guys, being new to Somersoft and also new to the property game i am not sure whats the best way to go about things.
I am currently looking at a serviced apartment that has currently got about a 20 year lease on it, what are some pros and cons about becoming the land lord of a serviced apartment?
And why do the banks make it harder to get a loan on a serviced apartment.

Thank you.

Very, very rarely. Margaret Lomas has a nice deconstruction of the virtues of serviced apartments in one of her books from memory.

I think its in the '20 Must ask Questions', although dont hold me to it.
 
I was also looking at a 'quest' apartment in Kew that was going for 'cheap' due to it being a distressed family friend sale.

Problem was... the main pro advantage which is meant to be cashflow didn't exsit. It was locked into a 10 year contract at a low rental rate, so I politely backed out
 
One of my clients bought a Qwest appartment in Box Hill a few years ago. I tried to warn him off the purchase, but he insisted it was an excellent investment because of the cashflow.

2 years later, he's trying to sell it (and will be lucky to make his money back). The cashflow has been eaten up by management costs and levies.
 
the banks make it hard because the lease is to a company rather than a mum and dad tenant. so to a lender its more of a commercial security rather than a residential. Because you cant move into it yourself, or rent it out outside of the lease/management agreement, there is more risk to the lender.

If this is your first invesment, pass. What you want is a normal, average home, that can be rented out to normal average tenants.

You cant get trickier later on, or after you have done extensive research into investment.
 
horses for courses

VY Berlina V8 is spot on there are plenty that go badly but you don't here about the good ones because good news doesn't sell; do your research particularly into the managers & their long term objectives & don't go in expecting a quick kill.
What is good about them (speaking from experience) is that you can generally stay in them for hols or business & if that is outside peak holiday periods it prob. won't affect the net return; e.g. even if a property has 80% occ p.a. that still leaves 73 days per year vacant (for you!).;)
 
I was also looking at a 'quest' apartment in Kew that was going for 'cheap' due to it being a distressed family friend sale.

Problem was... the main pro advantage which is meant to be cashflow didn't exsit. It was locked into a 10 year contract at a low rental rate, so I politely backed out

I think a lot of people worked these out - still a few for sale.
 
I think the only consistently good thing about serviced apartments is building them, selling them, and renting them back from the new owners and running a hotel on it. Of course, charge the owners body corporate while you're at it and make sure they don't own enough to remove you.
 
other options

Simon T not all lenders have such stringent requirements as the "big 4" banks; i.e. i know personally that latrobe mortgage in VIC will lend up to at least 80% & also do not require unit to be at least 50m2; just shop around away from the majors & you will get a deal, they are solid cash flow IP's WITH the right management:p
 
Acknowledging the risks and general negativity identified in this and other threads about buying serviced apartments, I still see them as a potentially viable high-cash flow, albeit low capital growth, investment vehicle when bought outright for a retirement income stream. The trouble is, there are many new ones up for sale through the likes of Quest and others but they are selling at what I consider a premium for products of this nature. I am finding it hard to find a bargain one from one of the supposedly many distressed sellers out there trying to offload one. Where are they all?
 
I bought a couple of serviced apartments in Canberra about 10 years ago, chucked them on P&I loans and basically ignored them. They are on a monthly lease back to Mantra.

In about another 10 years they will both be owned outright, and come off lease to be commercial or residential.

They have been cashflow positive almost since purchase.
 
I bought a couple of serviced apartments in Canberra about 10 years ago, chucked them on P&I loans and basically ignored them. They are on a monthly lease back to Mantra.

In about another 10 years they will both be owned outright, and come off lease to be commercial or residential.

They have been cashflow positive almost since purchase.

Did you buy them new/ off the developer or from another seller? If the latter, where did you find them?
 
Did you buy them new/ off the developer or from another seller? If the latter, where did you find them?

I bought them off another seller, who suddenly realised that property doesn't increase in value in a linear manner.

I found them on allhomes.com.au, the local Canberra property website.

They were cheap, too, because most people who buy want more flexibility, whereas I was happy to wait, positively geared, for them to be paid off and reverting to residential use.
 
I bought them off another seller, who suddenly realised that property doesn't increase in value in a linear manner.

I found them on allhomes.com.au, the local Canberra property website.

They were cheap, too, because most people who buy want more flexibility, whereas I was happy to wait, positively geared, for them to be paid off and reverting to residential use.

Was is positively geared due to deposit paid and further loan reduction due to P&I?
 
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