Hi guys,
I’m considering purchasing a self contained apartment, where you purchase the unit and lease back to the motel manager. I’m hesitant though as I’m not sure what the potential capital growth will be. Just wondering if anyone out there has any experience with these, in particular in the Perth or Western Australian area.
Regards,
Holly
Hi Holly,
I don’t like such investments due to:
* Limited capital growth
* Low LVR (around 65%-70% and worse if the unit is less than 50 sq mts)
* You cannot do anything (in terms of adding value, increasing rents, etc) with the investment but lease it to the motel management.
* High cost – body corporate, management fees, etc.
Hope this helps.
Sanjiv“There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.†– Nelson Mandela
Hi
You wouldn’t buy these for capital growth in the short term, but for cashflow because the ‘rent’ from the motel could be higher and more ‘guaranteed’ for occupancy (depending on whether it was a straight guaranteed lease amount as opposed to pooled arrangements).
In Brisbane, the arrangements for these are a bit better in terms of ‘guaranteed income from a business lease with CPI indexation’.
Probably not good for a first investment as the capital input of your own funds (with the low LVR, motel units are usually less then 50 sq metres studios) would be higher than for residential property.
However, the capital growth question is interesting. Low CG is self-fulfilling. Lenders are not keen to lend as much which means there may be limited buyers in the marketplace. Less buyers, means less competition to drive property prices, and therefore less chance of CG. Less CG may mean that lenders will not be keen to lend. So it’s a ‘vicious circle’ keeping the prices & CG down. But speculate for a moment – what if lenders decide to lend up to 95% just like residential property – could be the next big thing [aacool] with positive cashflow and CG.
Will it happen? I leave you with this thought. 2 or 3 years ago, lenders would not lend anything for a studio sized (<50 sq mtr) motel unit. Now some are considering lending 50%. Is it the beginning of a trend?
Gary
Author of “Property Millionaire, The Guidebook to Having Great Australian Dreams”
Creator of Property Millionaire – The Boardgame
http://www.888abundance.com
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