Strata holiday resort complex fees

[Toby]

My wife and I are looking at purchasing a freestanding townhouse in a strata holiday resort complex in south west WA.

The marketing agent for the developer has advised that management fees for the complex will be 14.5% of revenue and operational expenses will be approx 50% revenue.

This seems a little high to me? What type of fees/expense should you expect to pay for this type of property?

Cheers

 

[Twitch]

Hi,

First thing to understand is that this not a residential property investment, it is a commercial investment. The fees look high but they are usually high for that kind of thing.

These kind of investments (along with retirement units & serviced hotel units) get discussed on this forum from time to time. There are numerious advantages and disadvantages, for me and probably for most on this forum, the disadvantages outweigh the advantages.

Disadvantages include possibly limited capital growth, hard to finance, hard to resell, no control, business risk, management risk, and no value add potential. Advantage is it can produce a resonable yield, although it is very debatable as to whether the additional yield is sufficient to compensate for the disadvantages. Obviously some will turn out to be great investments, but many won't.

Good luck.

 

[Toby]

Advantage is it can produce a resonable yield, although it is very debatable as to whether the additional yield is sufficient to compensate for the disadvantages.

G'day Twitch,

Thanks for the feedback. Do you have any idea what kind of yeild you should expect from this type of property?

Cheers

Toby

 

[Twitch]

Hi Toby, I don't know. Perhaps someone else on this forum would.

I will (politely ) point out that if you are even asking that question you are not yet ready to buy and need to continue with your research. Well done though on asking, too many people blindly sign up to such deals without sufficient DD.

Good luck.

 

[Toby]

Hi Toby, I don't know. Perhaps someone else on this forum would.

I will (politely ) point out that if you are even asking that question you are not yet ready to buy and need to continue with your research. Well done though on asking, too many people blindly sign up to such deals without sufficient DD.

Good luck.

G'day Twitch,

I agree, we are definitely not ready to sign anything. I’ve been given a basic indication of expected rents, occupancy, expenses etc from the marketing agent but I’m obviously taking these with a grain of salt. What makes it hard to do the DD is it’s a new complex and a management agent hasn't been appointed yet so there is no historical data to look at. We are taking a drive to the site today to at least get a feel for the location.

Cheers

 

[The Y-man]

G'day Twitch,

Thanks for the feedback. Do you have any idea what kind of yeild you should expect from this type of property?

Cheers

Toby

Maybe 10%-15%pa net of costs before you even started considering?

Otherwise, you'd be better of going to a large commercial prop trust (admittedly with lower yield, but with much more liquidity and larger capitalisation)

Cheers,

The Y-man

 

[chrispy]

I looked at these in Melbourne. The Agent told me that he has had some of the townhouses on the books for 12 months and cannot even get an offer from anyone.

If you are looking for cashflow then as long as the Management Company does not go bankrupt then you are OK. If they do go bankrupt then you have a great townhouse at reduced cost.

I was concerned that once you bought in it would be virtually impossible to resell these particular units.

From other threads you will see that some participants have done very well from them in other areas.

Chris