The Good and Bad?--Buying Serviced Apartment as Investment Property through SMSF?

[Serenas]

Good evening everyone, I came across a serviced apartment for sale this afternoon, which sounds very good investment with attractive positive gearing amount each year(a big few thousands dollars each year, and the property asking price is under $300k). and wondering if it's of any good for a SMSF investment?

Would like to hear the good and bad of buying serviced apartments --the one I mentioned is having 5 years x3 lease so obviously within 15 years, we can't dream of living in that unit/apartment even for one day.

 

[DaveM]

Limited capital growth, high levies and mgmt fee, hard to finance. Even if you paid cash why would you want to lock your smsf into a poor investment type that is hard to resell should you need the money later?

 

[Peter_Tersteeg]

My experience is that serviced apartments rarely make good investments, regardless of what the ownership structure is (SMSF, trust, directly ownership or anything else).

I've had quite a few clients who have been adamant that they were purchasing a cash flow positive property based on the figures they were presented with. A few years later they have generally admitted that the cash flow simply didn't stack up to what it was advertised as.

Also lenders will rarely lend more than 60% against serviced apartments if they'll lend anything at all. If lenders believe serviced apartments to be bad investments, do you really think you should be investing in them?

 

[Peter 14.7]

Ditto to both above.

In property the god tick over shares is you have control, leverage, CG assured and no chance of going bust. With serviced apartment you do not have any of these.

I know of a business supplier to me who bought in a prime Sydney CBD warehouse conversion complex. High rents , eventually really high, but also high and higher management fees. Then issues with defects, etc.. he cut his loses after 10 years and got no CG, only his money back of $500k

if he had bought around the corner is std residential he would have doubled his value. Made $500k

Peter

 

[Paul@PFI]

There have been many tears when the management company stuffs up your investment by mismanaging the site....They are using you to finance their operations at a 5% interest rate Dont expect great returns. You cant put up rent. You cant evict the sole tenant. If they mismanage it you ht find it impossible to sell. And some lenders wont touch it with a pole.

They are copying from retirement villages ??

 

[westminster]

There is a zillion posts on here why serviced apartments and/or Uni lodgings are generally bad ideas. It doesn't matter what way you buy it, if you wouldn't buy it using normal ways WHY would you consider doing it in your SMSF?!?

 

[Serenas]

There is a zillion posts on here why serviced apartments and/or Uni lodgings are generally bad ideas. It doesn't matter what way you buy it, if you wouldn't buy it using normal ways WHY would you consider doing it in your SMSF?!?

I thought I would buy it the normal way, the only thing is, my husband's SMSF fund seems sitting there doing nothing, and I thought it would be a good idea to get the fund at least working...

But from all discussion above, it sounds like I should stop thinking of buying serviced apartments at all.

But the arithmetic sounds so good...$1700 net rent per month, which means after management fees strata fees council fees etc my understanding, and 4% rent increase every two years...yet the asking price was only below $300k...so I thought each year if I could get $8k net income, it sounds very good buy something...

But then, you are all right, I shall stop thinking of this...if there isn't much CG, what the point of doing property investment then...

 

[punterncollect]

there is a light??.

Hi; there certainly are decently managed successful & profitable (for investors as well as managers) serviced apartments although some of what is said above is true?..but lets just not throw the baby out with the bath water!
You need to consider c.g. of course but a good cash flow positive unit is not to be sneezed at and if you hold the property for a long time say 15-25 years the potential for rezoning is huge (from serviced to resi) & hence a substantial kick in value if the property is well located.
p.s. I do manage serviced apartments for many owners & all those who bought post GFC are very happy so the old story goes buy in gloom sell in boom!!

 

[impala67]

Totally agree that serviced apartments and student accommodation and over 55's units are NOT ideal for most investors, with most of the reasons already stated previously and in many other threads on SS. However I have read that some "experienced" investors have used them as cash cows for their portfolios. No specifics have ever been stated though.

The many examples I have observed and followed in Melbourne (e.g., Prahran, East Melb, Alphington, Hawthorn & Kew) seem to have been bad decisions for the people trying to onsell them, & at significant discount ($100K+) 6-18 months later. Some are advertised to be sold year after year after year. A lot of the brokers and accountants on SS will tell you they are not suitable investments. I agree, as I have yet to see where they have been a good investment. The rezoning long term hold option seems the only viable option(which I'd never really considered previously) however; how long do you wait and how do you find a guaranteed future rezone property? For such a long term hold I would rather buy a developmental (manufactured growth) property, or a true cash-flow positive property, and/or a commercial property. ...also - just an idea - possibly consider speaking to your financial planner & consider a mixed property fund for your SMSF ?!

 

[Redwood]

Totally agree that serviced apartments and student accommodation and over 55's units are NOT ideal for most investors, with most of the reasons already stated previously and in many other threads on SS. However I have read that some "experienced" investors have used them as cash cows for their portfolios. No specifics have ever been stated though.

The many examples I have observed and followed in Melbourne (e.g., Prahran, East Melb, Alphington, Hawthorn & Kew) seem to have been bad decisions for the people trying to onsell them, & at significant discount ($100K+) 6-18 months later. Some are advertised to be sold year after year after year. A lot of the brokers and accountants on SS will tell you they are not suitable investments. I agree, as I have yet to see where they have been a good investment. The rezoning long term hold option seems the only viable option(which I'd never really considered previously) however; how long do you wait and how do you find a guaranteed future rezone property? For such a long term hold I would rather buy a developmental (manufactured growth) property, or a true cash-flow positive property, and/or a commercial property. ...also - just an idea - possibly consider speaking to your financial planner & consider a mixed property fund for your SMSF ?!

Consensus is serviced apartments in a SMSF is a bad idea and i'm inclined to agree.

Many commentators will say that serviced apartments are a 'safe' investment particularly in uncertain times. However, with a SMSF you are looking at growing your retirement nest egg, if you want a stable return through it in a TD and earn 3%.

There are so many better options for the SMSF punter, depending on your personal circumstances and your investment preference. Residential property has so many opportunities, find the right property in the right area and you will have an effective rental yield to cover your loan repayment, added to that you have the prospect of capital growth.

Do your research, you will also find finance is tough for serviced apartments.

Hope that helps

Cheers, Ivan

 

[punterncollect]

re impala67 comment on significant discount on re-sale in 6-18 months from original purchase; well I would suggest that most property re-sales within that time period will almost certainly yield a loss after costs.why would you sell in such a short time frame?

 

[Peter 14.7]

Hi; there certainly are decently managed successful & profitable (for investors as well as managers) serviced apartments although some of what is said above is true?..but lets just not throw the baby out with the bath water!
You need to consider c.g. of course but a good cash flow positive unit is not to be sneezed at and if you hold the property for a long time say 15-25 years the potential for rezoning is huge (from serviced to resi) & hence a substantial kick in value if the property is well located.
p.s. I do manage serviced apartments for many owners & all those who bought post GFC are very happy so the old story goes buy in gloom sell in boom!!

I know the ones in Sydney City Council has been told no rezoning and personally punting big tim you may get a rezoning in 15 years plus is not a sound strategy but a gamble.

Peter

 

[impala67]

re impala67 comment on significant discount on re-sale in 6-18 months from original purchase; well I would suggest that most property re-sales within that time period will almost certainly yield a loss after costs.why would you sell in such a short time frame?

My guess is buyer remorse & probably panic sales.