Whats wrong with this investment?

[wagnman]

There are heaps of retirement village investment properties on the market in Ipswitch.

One in particular one is as follows (copied and pasted from web site)


6 YEARS RENTAL GUARANTEE:
* Body Corp: Nil
* Council Rates: Nil
* Management Fee: Nil
* Guaranteed Net Returns: $15,200 per year (8%)
* BONUS – Depreciation for 4th year: approx $5,372

Grab this SOLID POSITIVE CASHFLOW property with 8% net rental guarantee for 6 years, i.e. $0 outgoing expenses. As a bonus, you can claim 4th year depreciation of approx. $5,372.

xxxxxxxx xxxxx xxxxx is a professionally operated retirement village, 5 mins from booming Ipswich. The gated community has facilities like dining hall, in-ground pool, laundry, 2 large indoor games/function areas and a large resident's clubhouse. For more information, please refer to


This sounds like decent returns until I looked at the CBA mortgage calculator and saw that on an IO loan of $190K the repayments are $328 per week and their rental guarantee of $15200 per year works out at only $292 per week.

There would have to be a stack of depreciation to make it +ve geared surley.

Am I missing something here or is the agent just plain lying about it being a "solid +ve geared investment'?

 

[WillG]

it is probably missing capital growth. Do you actually won anything besides the guaranteed rental income ?

 

[The Y-man]

You need to look at:

LVR (probably be 60%?)
Liquidity (as in no...)
and
What happens when the group running the village go bust....

Cheers,

The Y-man

 

[VYBerlinaV8]

Assuming you would own the actual property, it may be structured like some serviced apartments I have, where the lease arrangement back to the operator lasts for a number of years (eg 10 years, plus 3 x 5 year options). This means that the lender for the finance is effectively unable to reposess the property (except in it's current form), and thus isn't necessarily able to sell it quickly (they would need to find another investor to buy it), making the lender nervous, and thus having stricter than normal conditions for purchase (eg 30% deposit). Fundamentally, this type of investment gets bought at a discount to market compared to similar residential properties. In looking at these retirement units I'd be checking out what exactly you would own, what the lease binds you to (especially time-wise), and how the overall business model works so you can work out whether the operator is actually viable in a business sense. They can make all the guarantees they want, but if they have no money to support these, they don't really mean dick!

Satisfy yourself that you are getting what you think you are, that the numbers add up, and that rental growth is spelled out, and you may have a bargain on your hands. Or not. Check everything, and don't assume the legals will work the same as residential.

Let us know how you go - it sounds interesting.

 

[skater]

.

One in particular one is as follows (copied and pasted from web site)


6 YEARS RENTAL GUARANTEE:
* Body Corp: Nil
* Council Rates: Nil
* Management Fee: Nil
* Guaranteed Net Returns: $15,200 per year (8%)
* BONUS – Depreciation for 4th year: approx $5,372

Grab this SOLID POSITIVE CASHFLOW property with 8% net rental guarantee for 6 years, i.e. $0 outgoing expenses. As a bonus, you can claim 4th year depreciation of approx. $5,372.

Some quick questions that come to mind.

Why is there no Body Corp?
Why is there no Council Rates?
Why isn't there any Management Fees?
Why is the return the same for 6 years & not indexed to inflation/market rents etc?
Why is depreciation only available in year 4?

 

[Twitch]

Am I missing something here or is the agent just plain lying about it being a "solid +ve geared investment'?

What's 'missing' is capital growth.

 

[The Y-man]

* Guaranteed Net Returns: $15,200 per year (8%)

Another thing - considering this is a commercial property (for most intents and purposes) - is 8% an acceptable yield?

Cheers,

The Y-man

 

[eKwatee]

There are heaps of retirement village investment properties on the market in Ipswitch.

One in particular one is as follows (copied and pasted from web site)


6 YEARS RENTAL GUARANTEE:
* Body Corp: Nil
* Council Rates: Nil
* Management Fee: Nil
* Guaranteed Net Returns: $15,200 per year (8%)
* BONUS – Depreciation for 4th year: approx $5,372
QUOTE]

Correct me if I'm wrong but if you bought this property today and sold it in 5 years time and the guaranteed rental return is still $15,200 (8%) and an investor was looking to buy wouldn't it be worth exactly what you paid today because the rate of return is the same but slightly more risk because there was only 1 more year rental guarantee........ Would this be the case?

 

[boods99]

Grab this SOLID POSITIVE CASHFLOW property with 8% net rental guarantee for 6 years, i.e. $0 outgoing expenses. As a bonus, you can claim 4th year depreciation of approx. $5,372.

QUOTE]
This really gives me the heebee geebeee's!!

ANY property can be Positive cash flow...so long as you have a big enough deposit...these claims are misleading at best...

 

[ggumpshots]

It is +vely geared if you pay cash, otherwise do the math.

Just depends on what deposit you are willing to put down.

 

[BayView]

I think the whole ad should be in the real estate speak thread.

Whenever I hear "rental guarantee" a 299ft square black steel shutter goes down over my eyes, ears and brain.

Rental guarantees are usually built into YOUR purchase price.

Also, retirement villages are purpose built properties, so are harder to get finance for and usually at low LVR's.

 

[wagnman]

Cheers for all the replies guys.

I have seen so many of these style properties for sale and the agents that are selling them usually seem to be trying so hard to sell them that it all rings of "too good to be true".

I can see how there is no room for capital growth too because when you look at what you're buying I cant see how the value is going to grow all that much over time as there in no real land value etc.

It looks to me that it is a bit of a dead end buy with no real way to get either a good income off the investment or capital growth or even good tax claims.

Thanks again for the replies.

 

[eKwatee]

6 YEARS RENTAL GUARANTEE:
QUOTE]

Be careful here as the rental guarantee is only as good as the fine print giving the outs. I knew someone who bought a display home with a rental Guarantee for a fixed time(3 years) + a right of renewel but within the fine print in the guarantee said the builder at their absolute discretion could give a 60 day notice to cancel this agreement and they did approx 14 months earlier than even the end of the first agreed period.... Beware!