Serviced Apartment after 12 months (real example with numbers)

A big bunch of things to consider. On the surface the yield sounds great but you need to really think about it.
* Is it at least 40sqm? (50 is better but 40 might be ok. Less than 40sqm, forget it, too hard to borrow for)
* Are there many of the same or similar properties around (if so, it may hurt your capital growth & ability to get tenants & ability to resell later)
* How are the strata fees? Does it have lifts, gyms, concierge, pool (these are expensive to maintain)
* Are there any restrictions on usage - check the contract, don't rely on what the agent says
* If you leave it in the pool, what expenses will you be responsible for? How much of that gross amount will you be able to retain? How much would it get as a rental outside of the pool?
* Why is the property being sold?
* Would it be a comfortable home as a PPOR? If it doesnt appeal to an aspiring home owner then I'd perhaps give it a miss. Home owners are the segment willing to pay more for a property.

 

Thanks, after looking at it it doesn't look like its netting much more than 20k, after commissions, (administrative and sinking fund are 15k per 'key') I'm assuming admin fund is the same as body corp fees?

 

my goodness. Which city is that?

 

So... saying it's dual key... then 30k per year? That would be ridiculous to own. And yes, I would equate the admin and sinking funds to be the same as the Body Corp/strata levies.

 

Yep, 30k for both, it actually returned around 90k last year but after expenses closer to 20 net

 

Went fine overall, but not without some surprises.
Basically, this apartment was released from the pool by the company that manages the serviced apartments, as they said they weren't making enough money off the 2-bedders. We were hoping it would stay with them for as many of the 3x5 year terms as possible but it didn't go that way.

However, after expecting to now get a significantly lower rent when renting ourselves, we were surprised to find a great single tenant on a 12-month lease that is paying exactly what we were receiving from the serviced apartment company. While we'd still prefer it to be with them (as then there is no management and tenant issues), it's going fine still so we're happy.

We bought the furniture/washer/dryer etc. (everything that was in there, down to the cutlery) from the company when it came off their lease for $2k, so I guess that helped us get a high yield renting it out as a fully-furnished apartment.

And yes it's tough to get finance for them in general (and even harder now). When we bought it I only found 1 lender that would lend and at max 70% LVR.

 

It's always great to read an update, Andy.
$2K for all the loose Assets is a great deal.
Scott

 

Rental doesn't seem attractive at all. I would expect a lot more lucrative return.

Usually purchase price of service apartments would be 10-20% lower than the market price, so at least you get a bit of that incentive should the apartment gets out from the contract. But then when you selling it, unless the whole business opt out, you going to have the same issue of having to discount 10-20% to the next buyers.

The only cases i have seen this work well is if the hotel went bankrupt and the business shut down, then the building converts back to fully residential building. As long as there's service apartment running, you will have to sell with discount.

 

Yeah these were only available for a max of 15 years (3 x 5) after the first 10 year term, so they were always going to convert back to normal apartments, and the building was always only about 1/3 serviced apartments from the start.
So we felt comfortable going in knowing that at some point it would become a normal property and jump in value by $30-50k on that 1 day, which it did last year.

 

Hi Andy, are these apartments on Barkly street? How much do you think a 50 sqm one bedroom with parking serviced apartment in St kilda would cost today and are there seperate fees to the body corp (another fee to management)? What's the financing issues with serviced apartments about?

 

Not on Barkly.
There's several companies - I think what you want is:
a) not with one of the big serviced apartment companies
b) an apartment that is not serviced in perpetuity - i.e. there's a limit like 15 or 20 years after which it becomes a normal apartment
Financing is a real issue - when we were looking only IMB and one other would touch it, and even then only at 70% max.

 

if the lease has expired and you can own it Like a normal unit will financing still be tough because it’s part of a serviced complex?

 

Should I be asking for a discount on a serviced apartment because there's one for sale but they are asking for the same price as a normal apartment?

 

Hi Andy,

Do you mind sharing which service Apartment company did you use to be with? Do you have any thoughts about Quest ? Any suggestions of other companies that has good reputation and not too much risky?

 

Twenty percent net yield is fantastic !

 

20k net*

 

I am considering a dual key unit for sale which is in a holiday letting pool, but also able to be owner occupied, however NAB has told me they 'do not lend resort, holiday park or contained apartments'. Is there any reason for this?

 

yes, its a high risk investment. hence the low lvr offered by banks who will lend on it