Pros & Cons of Student/ Serviced apartments

Discussion in 'Investment Strategy' started by Billz, 20th Mar, 2020.

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  1. Billz

    Billz Member

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    Hi,

    I am planning to buy Student/ Serviced apartments in Sydney CBD ( near Ultimo).
    Please share some pros and cons of buying student apartments?

    I have a limited budget so that's why considering something within the range of 200-250K only.

    Thanks
     
  2. Lindsay_W

    Lindsay_W Well-Known Member

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    Capital gains (increase in the property value) will be minimal
     
  3. Brady

    Brady Well-Known Member

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    Not being able to tenant the property due to their being an oversupply.
    Especially right now where boarders are closed, these are typically filled with international students.
    Many uni's are also closed.
     
  4. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Con: Having to have a higher LVR on the unit due to it's size if it's less than 40 or 50sqm (depends on bank policy)
     
  5. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member

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    Pro: The rental returns can look very strong.

    Con: I can give you hundreds, but there's also this one...
    The vendors often hide the truth about the rental yields.

    There are occasionally exceptions, but in general these are terrible investments. Right now, they're even worse.

    There are other markets where you can purchase something reasonable for $250k.
     
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  6. Billz

    Billz Member

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    Thanks peter.

    What are other options within this range?
     
  7. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member

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    Outer suburbs of Adelaide. Plenty of reasonable options in regional locations.
     
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  8. The Y-man

    The Y-man Moderator Staff Member

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    I think more likely Con: Unable to get a loan full stop.

    The Y-man
     
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  9. The Y-man

    The Y-man Moderator Staff Member

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    If I was in that position, I would be buying units in a commercial property trust and a-reits.

    The Y-man
     
    Last edited: 20th Mar, 2020
  10. # 1

    # 1 Well-Known Member

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    Avoid serviced apartments and student accom, buy an old studio apartment in good location. I just got one inner bayside Melbourne for $190k, rents for $260 per week, body corp $24 per week. RP Data values it at $240k.
     
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  11. Trainee

    Trainee Well-Known Member

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    My guess is the op doesnt like debt and will be buying this with cash.

    still a bad investment.
     
  12. Brady

    Brady Well-Known Member

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    Not about OP not getting loan, it's everyone else who attempts to buy. If they can't lend, limited pool of purchasers, lower demand, high supply = low price.
     
  13. MangoMadness

    MangoMadness Well-Known Member

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    I bought a unit in a hotel around 2008 and sold around 2014. Great investment while I was living in it, I really enjoyed living in the city but these things caused me to sell (a couple of years after I moved out)

    - High body corp fees (about $7k in final year) which are pretty transparent but easily covered by the $440/week rent.
    - The building was getting old and needed concrete rot repairs in the basement carpark. The sinking fund was getting low and there was talk of special payments being required soon to get the repairs done.

    The 2nd point was a major factor. The air conditioning unit on top of the 24th floor cost around $800k after it crapped itself, which dropped the sinking fund to less than $200k and then building repainting and remodelling dropped it further and then the concrete rot started popping its head up and thats when I knew it was time to walk away.
     
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  14. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I have seen studio and student units in SMSFs and they are really bad. They often swing to short stay and students with a almost hostel like quality with low rent and poor prospects. Growth prospects dont mirror other property. Very hard to sell to someone else and hard or even impossible to finance. (Which limits resale too). This type of demand often means major strata levies and even underfunded building maintenance. And what say does 1 bedder have over the other 99? They may be owned by loads of others or even one main owner who refuses to fund anything. They then all compete on price with each other etc on all sorts of platforms. Agents arent throilled as they reflect small income for hard work and difficult issues.

    Just sorted tax issues for a sale of one this week. 4 years of losses for outgoings and sold for a 20% loss. I do recall cautioning this 5 years ago. That is not an investment. Its a sinkhole. A 0.5% term deposit would be smarter.
     
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  15. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member

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    Finance story about why serviced apartments are a risk. This happened about 30 minutes ago...

    Most lenders don't like serviced apartments and they won't fund them at all because they do see them as high risk (that's already a red flag why you shouldn't buy these types of properties). There are a few lenders that will fund them however, they'll even go up to 80% LVR if the apartment is 'compliant'.

    I've lodged the application with that lender, checked that the apartment is 'compliant' as per the lenders policy and made specific reference to this in my submission notes. The application is lodged, a little back and forth and it's going well, we just need to get the valuation back.

    The valuation came back last night. The valuer has noted that this is a high risk property and may not meet the 'compliance' requirements. The assessor has said it's thus non-compliant and we have to reduce the loan to 50% LVR.

    I point out to the assessor that I addressed this issue right from the beginning. Her response was another senior assessor looked at it and made the decision.

    I've appealed this on the grounds that the decision is inconsistent with the clearly written policy. Experience tells me that I'm probably not going to get a favourable result. I'm fairly sure that I can get another lender to lend to 65% which the client can cover, but it's probably going to be a pseudo commercial application which will cost significantly more.
     
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  16. Billz

    Billz Member

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    Feel sorry for you. So after all suggestions I should quit this idea. May be think of something else?Unit/apartment in some other state (not sure if its a better option) or buy a land here in NSW
     
  17. The Y-man

    The Y-man Moderator Staff Member

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    I suspect it isn't him you need to feel sorry for - but his client :D Unless you are sorry that he has to do the client's tax returns... (pretty sure he charges!)

    The Y-man
     
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  18. Trainee

    Trainee Well-Known Member

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    your options are too wide.
     
  19. Beano

    Beano Well-Known Member

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    If the government closes the borders so only Australian can come into the country and the property relies on overseas students you will be toast :-(
     
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  20. Lindsay_W

    Lindsay_W Well-Known Member

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    Start from the beginning - What kind of % return are you expecting/wanting from your $200K investment?
    It's hard to know what road to take when you don't know where you're trying to get to
     
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