Hi everyone.
I'm looking to invest and was wondering what the benefits of investing in a serviced apartment would be?
I heard they're low maintenance and can pretty much run on their own as they don't come with the typical responsibilities of being a vendor. Anyone had any positive/negative experiences with investing in serviced apartments??
Cheers,
Tracee
Positive
– Ok rental yield
– Dual service apartment tends to attract a better yield
– Owner can live in the property x number of times a year ( not sure if this is considered a benefit lol)
Negative
– low ( in some case no) capital gain
– High maintenance cost; most will have a agreement to repaint and refurbish the apartment once every 3-5 years
– Income is reliant on the success of the "business" rather than the residential market
– Harder to offset/sell
– Most lenders will only finance service apartments on a 70-80% LVR.
Unless the yield is fantastic ( >9%) and the business/operator is excellent- i can't really see why any investor would consider a service apartment.
Regards
Michael
Mick C | Shape Home Loans
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HI Tracee,
I don't have any personal experience with serviced apartments mainly because the banks seem to hate them! There was one in Townsville that I was really keen on but the bank would only lend 70% of the purchase price and I just didn't have the cash for the deposit. I know you have to be careful of strata fees, sinking funds and rates. You also have to make provisions for higher vacancy rates.
I'll be watching this thread with interest though.
Jess
Serviced apartments are generally treated as commercial so you need a larger deposit. They will often have a higher cash flow but little in the way of capital growth. Personally I think they are a poor investment
Nigel Kibel | Property Know How
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Hi Guys,
I know what you mean everyone's been telling me it'd be hard to get a loan unless I put down a big deposit..
I do have some money set aside so I guess it really comes down to whether or not I go for it..
One of the reasons serviced apartments caught my eye was I've heard occupancy rates are actually growing year on year with low volatility and steady capital growth for serviced apartments in the CBD? Perhaps due to the increase in people traveling for business.
As Michael mentioned, I'm aware that income is reliant on the success of the business, and I've look into reputable serviced apartment providers. Do you know much about Oaks or Quest?
Many serviced apartments have a condition in the clause where you cannot live in the property which many lenders consider as unacceptable security. There are only 3 lenders that will accept this.
Several lenders do serviced apartment but it is dependent on a number of things:
1. Is it pure investment or can you use the property as PPOR. If there is a clause that you cannot use it as PPOR in the lease agreement then you knock out CBA, Westpac, Macquarie and a handfulof other lenders leaving you with Citibank, Widebay and St George. From that selection many will have a policy whereby they will only finance up to 25% of the units within the complex.
2. Must be fully contained
3. Different lender will do different LVRs
Here are the Pros and Cons:
Pros:
1. Great net cashflow
Cons:
1. Hard to resell
2. Finance is extremely difficult for reasons mentioned above
3. A firesale in the complex and you are stuff when it comes to drawing equity on the property or refinancing
Overall I would strongly suggest avoiding SA's as an investment vehicle.
Regards
Shahin
TheFinanceShop | Elite Property Finance
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Hi Tracee,
There are loads of threads on this very topic in these forums. Do a search and you will see
Jacqui Middleton | Middleton Buyers Advocates
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Will do thanks Jac
Hi Tracee.
I'm a motelier with serviced apartments as well.
I pay all the expenses, including cleaning and finance costs.
If I could find someone to lend me 70% of the cost of each room or unit at 6%, who also pays the cleaning fees at double the true cost, pays me commission on the bookings, plus management fees, I'd be better off – it'd be called a block of managed serviced apartments. But I prefer to operate it as a motor inn with serviced apartments and no investors involved.
The investor returns are usually lower than the apartment managers can get commercial finance. If you get my drift.
Cheers
thecrest
thecrest | Tony Neale - Statewide Motel Brokers
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Have read and heard that service apartments purchase price is loaded as some/most have guarentee rent check out the are thoroughly,a relative has one in the Gold Coast and its not a good outcome they own more and when they bought it
I ment owe more
That is quite common with Serviced Apartments.
Regards
Shahin
TheFinanceShop | Elite Property Finance
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Email Me | Phone MeResidential and Commercial Brokerage
I Disagree with a number of opinions on this thread – yet completely understand why there is a tarnished view on SA as the pre-GFC SA rush left alot of investors burned.
The key risk with this type of investment is the type of lease you'll be subject to. SA a very much annuity type investments with strong cashflows.. Sure the LVR's are a little lower and your Capital Growth may be a little slower – however you can't have everything.
Put your commercial property hat on when looking at these
Some great opportunities exist at the moment and operators that weathered the storm – or restructured, have very bankable lease terms – they have to to get more stock.
So look at OAKS or Quest as a bench mark. Some leases even come with rental guarantees, collar and cap provisions to protect your downside risk and various other instruments. The bigger operators have robust balance sheets and the likelihood and a major reduction in your rental income is very low.
If you pick the right location and operator you can see nice appreciation on DCF valuations so I would say it is worth looking at some of the new apartments coming online
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