Serviced Apartment after 12 months (real example with numbers)

Discussion in 'What to buy' started by AndyWhite, 31st May, 2016.

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  1. AndyWhite

    AndyWhite Member

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    Yep. And to increase borrowing capacity a bit.
     
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  2. AndyWhite

    AndyWhite Member

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    For me the less common points on this one that push it over the line compared with other serviced apartments is:
    - coming in at the right time with a very negotiable vendor wanting to sell, and bargaining them down over a few months from $425,000 to the final purchase price of $375,000
    - this management company only operates this one location, so they have proven very easy to work with, and they haven't dragged the profit down for the owners anywhere near as far down as most of the other bigger operators have
    - ROI on the equity we put in at purchase (30%) of low-mid 20% range
    - this apartment comes off the serviced apartment agreement eventually and converts to a 'normal
    apartment, unlike some others that are locked in indefinitely
    - the building is only half serviced apartments, half normal apartments - this keeps the values up in general and doesn't make it obvious that it's just a huge building of serviced apartments like some of the other locations in this genre
     
  3. AndyWhite

    AndyWhite Member

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    Yes that's the plan at this stage. Rental return would fall substantially if it were on normal market rents.
     
  4. AndyWhite

    AndyWhite Member

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    I agree there are other avenues to get good returns like this, but in real estate at least, probably not with as little hassle as this.

    As I said the transfer hits our account every month on the dot, we NEVER have to worry about dealing with tenants in any way, or finding tenants for that matter. Basically we've had no dealings with this property at all since purchase.
     
  5. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    Which company is leading your apartment?
     
  6. Angel

    Angel Well-Known Member

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    Thanks Andy. I had always thought it was the landlord who is up for all the furnishings. Well done.
     
  7. Cactus

    Cactus Well-Known Member

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    Yes really.
    The point was if the management agreement is holding back the CG, then when it is no longer renewed, if the product is a liveable size (like OPs one) in a good location (like OPs one) then It should catch up to standard apartment.
     
  8. hash_investor

    hash_investor Well-Known Member

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    Quite a few in melbourne and other places out of agreement? Do you see them catching up?

    Rents are lower and strata is higher. Serviced apartments are good for cashflow, for pensioners and passive incomes generally.

    OP had a good deal on cf.
     
  9. Cactus

    Cactus Well-Known Member

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    Strata is no different on OP to the 2 bed apt I used to own in St Kilda 10 years ago.

    I don't see why rent would be significantly lower than any other 2 bed St Kilda.
     
  10. tobe

    tobe Well-Known Member

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    What are the management expenses? Or is that $2391pm net after management expenses?

    Regarding capital growth, yes, it looks like capital growth will be 'restored' when the management agreement ends, but there is an opportunity cost in the interim, you cant access the equity to leverage into other assets in the meantime.
     
  11. AndyWhite

    AndyWhite Member

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    Management expense is not handled by us - yes we just receive the $2,391 net from them each month which is after all of their expenses (and profit) are deducted from their earnings.

    Yes the money is pretty much stuck there - hard to refi these away, would only every get 70% LVR approved even if you do find a bank to take it, and can sit on the market for many months if trying to sell.
     
  12. AndyWhite

    AndyWhite Member

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    Rent would be similar or the same - as I said half the building is normal apartments already which have never been part of the serviced apartment business.
     
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  13. hash_investor

    hash_investor Well-Known Member

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    Honestly, I am not against this kind of deal. At some stage I would probably go after mebourne cbd apartments for the yields. I think they will be easy to rent and great passive income every month...
     
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  14. r3ckless

    r3ckless Well-Known Member

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    Thanks for this. Anyone dealt with quest serviced apartments before? Looking at a potential serviced apartment . Main reason is cash flow to assist with non deductible debt reduction
     
  15. Beano

    Beano Well-Known Member

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    Overall what sort of net yield do you get ?
     
  16. jefn89

    jefn89 Well-Known Member

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    How did 2017 go for you with this one Andy?
    Looks like from a cash flow perspective, if that's someone's goal serviced apartments can work. May be tough to get finance for at above 70% LVR :)
     
  17. Beano

    Beano Well-Known Member

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    Is the net yield 7.6% being $2381 on $375k purchase price ?
    Does the $2381 include asset replacement ?
     
  18. Alex123711

    Alex123711 Well-Known Member

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    I came across a similiar apartment: dual key, managed by hotel letting pool, is returning 80k gross and is 420k. Does this yield seem too high for the price? What are the risks with these kind of units?
     
  19. Gockie

    Gockie Life is good ☺️ Premium Member

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    Are OO'S permitted to live there? And is it over 40 or 50sqm?
    If not, then it's going to limit your capital growth. Ideally you'd like to be able to sell to anybody, not just investors. And banks dislike lending for small properties or investor only properties so you may need to come up with a larger deposit (like 30%)
     
  20. Alex123711

    Alex123711 Well-Known Member

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    Thanks for your reply. They said you have the option of leaving it in the hotel pool, renting it out privately, or living in one and renting the other. Not sure about size it might be under 50 i'd say as it looks quite small.
     

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