Inner city Apartments - leased to hotels seems too good to be true! What's the catch?

I'm looking at some inner-city apartments which (so it seems) have a guaranteed return and no outgoings as the tenant pays it all.  These apartments are leased to Hotels.  This whole scenario seems too good to be true so I'm assuming it is - what's the catch?

Does anyone out there have investments of this type?

The catch that worries me, is if the hotel goes broke, you are left with a room in a building with no services worth very little.

I'm not sure if there are other issues.

What are the basic figures ?
Some hotels make more from selling you an apartment freehold, then managing it for you. If they have to pay you 5%, it's cheaper than paying finance 10% to buy one.
Admin, letting fees, cleaning and maintenance costs charged to you are sometimes above market price.
Be sure of the true market value of the apartment. Assess honeymoon period deals over longer periods.
Do your homework carefully.
Cheers
thecrest

the cosmos always delivers so order carefully

 
What you're referring to are serviced apartments. Most of them low return investments as your options are very limited in terms of what you can do with the property. Like you cant live in it yourself or rent it out like any other property. These properties usually have minimal growth unless there is something unique about it.

There is another type which you can either live in it or rent it out or give to the hotel to manage it for you and get your rental guarantee. They have better growth. Look for these type of properties if serviced apartments are your preferred choice of investment.

To answer your question: It is true but not too good.

Low Capital growth.
Also the bank wont usually lend more than about %70 towards these properties

Disadvantage:
1. High MER/Strata fee/ management fee etc.
2. Restricted to investor only (difficult to sell to home buyers)
3. No/low capital growth
4. Difficult to sell, normally longer than usually property
5. Usually small apartment (ie. studio), problem with funding
6. Although ROE is usually higher than usual, but the  net return probably slightly higher than normal apartment
7. Other issue with management.... Avoid if possible

Cheers

Donald

hi all,

got an intersting one for you here- sort of a free hold apartment- sort of a serviced apartment-

i have the opportunity to buy a 1 bedder on the edge of sydney CBD.
The one bedder is in a block where some of the units are serviced apartments,  some appear to be renatable.
the one i am looking at is managed by a real estate agent who advertises and manages your property for you in terms on the tennant- my unit is not serviced by the people who service the other units the tennant must look after this apartment as if it was a normal free hold property- howver my tennant has full access to the facilities in the building.
the catch seems to be that you can only sign a short term lease "officailly" 90days- however the agnet has advised me that my tennant can stay on longer than that, and in fact the current tennant has been going 'week to week" for approx nine months now and another tennant in the building they manage has been there for 2+ years!

The other thing is i cannot live in it myself as an owner occupier but as it is for investment- this dies not really concern me.

I pay high srata fees- due to a consiergre and a pool.
i also pay water and council rates.

help!  what category does this one fall into???

I hate to say.. but serviced aparments around chippendale/surry hills/ camperdown are dud investments.
I guess that the ROI is probably 6.5% to max 7% but after strata fees and high cost turn over/management fee
the difference is probably MAX 0.5-1%.

And also...probably MAX LVR << 70%, because it is a high risk investment