To good to be true?

[wrexter]

Hi all

I just want to get the perspective on you experienced investors.

I just came back from inspecting a single bedroom apartment right in the city

http://www.realestate.com.au/property-apartment-wa-perth-116010415


Cost is $263k
Short term stay only (3 months max) or owner can stay indefinately.

Property can be managed by seller (executive apartments) who service those requiring short term stays.

They project occupancy rates of 78% to 91%, with higher occupancy much more favourable in that area (so they say).

Expected rental income per week $1155

Outgoings


20.9% Property management
Fees (advertisings, linen internet) - $3500 p/a
Rates (water, strata, coucil) - $4000 p/a
Owner to pay services bills (gas, elec) - ~$1500 p/a (is this a fair amount?)


I.e.

Incoming (@78% occupancy) - $46,846.80 p/a
Management - $9790.98 p/a
Fees- $9000 p/a

Leftover - 28055.8 p /a

Interest only loan ($275k) @ 6% - $16500 p/a

Profit - $11,555 p/a

Too good to be true, what are the catches with these besides higher vacancy rates, lower weekly rental yields.

The place did need a little bit of work, at least 20-30k to renovate.


Cheers,

AV

 

[Colin Rice]

Is it 52sqm inclusive or exclusive of balcony?

Lending restrictions will apply;

Example from NAB:

Restricted Residential Security - Serviced Apartments Homeside / nabbroker Full doc Reviewed: 25-08-2013 Source: AFG Source
Typically, Serviced Apartments are:


?used for holiday and short-term (generally less than three months) accommodation
?centrally managed and serviced
?subject to a Management Agreement (which may be for a fixed term, and the ability of an owner to remove an apartment from the agreement can be limited)
?likened to a share in a hotel business due to the terms of the Management Agreement.
Serviced Apartments qualify as acceptable security when ALL of the following criteria are met:


?They are legally permitted for permanent residential use, based on the zoning and planning regulations for the property.
?They can be removed from the Management Agreement at any time and within a maximum of 4 months (confirmation from NAB Legal is mandatory).
?NAB is able to deal with the property in the normal residential property market, separate from the operation of the overall development in which the property is located
?Max LVR 80% or
?Max LVR 70% if non-owner occupied inner city apartments.

 

[wrexter]

i dare say inclusive of balcony, quite small.

 

[willb]

I would think the utilities will be more than $1500 pa.

If its leased by management they should be able to show occupacy for the last few years.

 

[impala67]

http://www.questapartments.com.au/Accommodation/4/Australia/Perth_CBD/Quest_West_End/Welcome.aspx

It is a Quest Serviced apartment. If you are investing for the purpose of capital gain and hoping for potential capital gains to create wealth, then this is not something for you. Many seasoned investors will stay away from these, however some do buy them. What you will generally find is that if you try to offload them in any hurry, they take a massive price hit. One main reason is the lending criteria which was already mentioned. In certain scenarios they may be worth it, and depending on your risk profile. If you are looking for a cash cow to balance your portfolio then you may wish to consider it. However due diligence is required, and you need to ensure you are happy with your return considering the risk. There are some for sale in blue Chip suburbs in inner Melbourne and the inner East that I constantly come across that are listed for sale perpetually for year after year. Here's a link to an older thread - same topic.

http://somersoft.com/forums/showthread.php?t=50056

 

[UrbanPlanner]

This one hit my inbox earlier in the week. But at that stage the ad mentioned that it had previously been rented at $1155pw, but would likely fetch $500pw on the normal market. The massive drop in rent has since been removed? :s

 

[wrexter]

I suppose $500 p/w if managed through a normal property manager, rather than through executive apartments? (who take a 20.9% cut)

If i were looking for an apartment to live in, would of been a good buy i think.

 

[jerrybee]

I've seen a few of them, and they always read like "5 years lease + 5 year option to renew".

I never knew that option was THEIRS, not yours. Wow. It's definitely a bad idea for all the reasons stated above.