Long time 'ghost-reader', First time poster!

I've been a long time ghost reader and thought I would finally introduce myself.

I'm based in Brisbane and own 3 units which are all coming up for rent in a few months (not my best purchase... If only I knew about PC a few years ago!). Vacancies in their areas are high and I'm concerned about potentially having them vacant for a while between tenants.

I have a question for the PC brains trust about these units.

My property manager has been approached by a company who take longer term leases on apartments and sublet them on Airbnb and I'm seriously considering it. They also offer a percentage of their revenue once they make over a certain amount. All the documentation they have sent thru looks like they have a fairly professional set up.

The benefits I can see is the security of a long term lease, property is cleaned professionally regularly, damage covered by Airbnb insurance and the potential to increase my yield (would help with my debt reduction strategy).

The risks I can see is increased chance of damage, potentially issues with neighbours/common property (all the usual issues associated with short term tenants staying in apartments and potential conflicts with neighbours).

Have I missed anything?

Would you do it?

 

Where are the 3 units @Petey?

 

Hi Alan, They are West End and New Farm

 

These are pretty good areas in Brissy (I used to be based out of West End for 10 years in a previous life). Your anticipaced vacancy surprises me.Is this because of the potential oversupply of units coming online or something else?

 

Yes a lot of units around and vacancies a touch over 3%. Nothing super alarming but lots of apartments in surrounding suburbs too (South Brisbane and Fortitude Valley).

A search of 2bdrm, 2 bathroom apartments in New Farm between $400-$550 and surrounding suburbs gives me 544 results!

West End is a bit less scary - that only gives me 261 results

 

Sounds interesting

What sort of lease term are they offering? Are they paying market rent?

 

Market rent with potential for 3 year lease

 

Did you end up making any decisions here? Interesting.

 

Worth considering but I wonder can you negotiate it for something over "market rent"? And "potential for" can mean nothing. They can decide to stop after the first year.

 

I’ve been negotiating - existing tenants are still in place so haven’t been rushed.

They are offering 3 year + 2 year extension at their option. If they renew and stay for 5 years they will paint at end of lease - very tempting!

@Gockie any attempt to negotiate the rent just reduced the percentage of revenue they would agree to. It’s a commercial trade off - higher rent guaranteed from day 1 or a percentage of revenue over a longer period over and above a lower guaranteed rent. What are your thoughts on this?

The team behind it have commercial leasing know how and have certainly done their numbers and feasabilities, know what they can negotiate on etc.

 

They are offering 3 years but yes they could break lease anytime. No different to any other lease. I imagine I would only be able to claim standard break lease costs

 

Understood. Throwing about some thoughts...

3 years initial agreement + 2 years option to extend sounds good, assume you have seen some other ones they have run?

Does the 3 years have a set increase % amount (E.g. CPI increase) every year?

What would happen with your agreement if short term lets were banned in the building?

Leave it up to you to consider the rent and revenue plan.

 

• Would they be leasing under a commercial lease or residential agreement?
• Are you saving on management costs ie self-managing?
• Will you be getting the traditional outgoings or full outgoings under a commercial agreement?
• Who is furnishing the units?
• 3% vacancy rate is on the high end of tight, it's not a very high rate for an area.
• Plenty more questions If it will be a commercial lease arrangement.

 

A retail shop lease is quite clearly defined in QLD Retail Shop Leases Act as the lease of a retail shop.

"5B Retail Shop means premises that are-
(a) situated in retail shopping centre; or
(b) used wholly or predominately for the carrying on of a retail business"

I can't imagine how subletting a residential apartment for short stay accommodation could be captured by this definition.

 

@SuzyG - did I miss something about this being a shop?

 

ha sorry! Nope... I probably missed a few steps.

I guess to work out whether its a resi or commercial lease, you have to look at the definitions of both resi & commercial legislation.

The commercial legislation covers retail shops (as above).

The residential legislation covers a lease of a residential premises, defined as 'premises used, or intended to be used, as a place of residence or mainly as a place of residence'.

Hard to say whether it would technically be covered under this definition...

Is there any other legislation that would apply here?

 

IIRC correctly, residential leases over 3 years (?) can be a commercial lease.

 

mmm... not sure I reach that same conclusion.

Just did a big of googling, and the only difference I can find with 3+ lease term is a requirement to register any lease to achieve infeasibility of title. But there didn't seem to be any kind of change over to a commercial arrangement for a longer term lease.

I've only looked at QLD - other states might have different arrangements.

 

@Gockie I’ve checked and this would give them a right to terminate lease. Seems reasonable as they wouldn’t have a business anymore.

No CPI increases on offer but their revenue will increase as they build their business. I will see if I can negotiate!

 

@Scott No Mates I am running on assumption that it’s a resi lease.

They furnish the apartment - I’ve seen their design brief and it’s good stuff. Decent quality and should rent well