im new to the forum and investing and would like some advsie. I have stumbled over a neutrally geared hotel apartment with garanteed return. It is not a new block and the vendor is not the manager organising the rental return. There does not appear to be ANY captial growth potential after looking at similar sales years ago in the building however the return is strong. Is this a good investment? Are there possible traps that im not aware of?
Hi Ron & welcome to the forum,
It may be very difficult to finance, at best probably looking at commercial rates with a low LVR.Neutrally geared with no cap growth!!!
Regards
Steven Crane
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Hi Ron Burgundy (Loved you in The Anchorman too by the way!)
Not sure this would be such a great start if it is neutrally geared and has no chance for cap growth. I would personally go for either one or the other.
All the best.
Danny
Hi,
It seems to me that the first investments starters look at (myself included) are:
1. Caravan parks
2. Serviced apartments
3. Hotel apartments
4. Student accomodation
5. Nursing homesThe common theme to all of these is just what Ron Burgundy stated: strong rental returns (neutrally geared) with no capital growth.
I guess a basic search on the net for high yield investment property turns up these properties right at the top of the list. They did for me. So the good investors immediately ask “are they any good” and the so-so to bad investors (not investors) just go ahead and buy. The common answer is
“in general (in general mind) these investments are a poor choice for wealth creation”
There are a myriad of reasons. The main ones:
1. Banks wont loan much for them.
2. No captial growth as you are tied to the lease and much capital growth comes from the demand by people wanting to live in the property (not investors who are a minority).
3. After all outgoings the net return is often simply not there.
4. Slow to sell = capital tied up not working hard.So that’s my summary
Personally. I do not see the point in buying a neutally geared property with no capital growth. You will in many cases omly get 65% lend so you are either tipping in cash or a line of credit.
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand Buyers advocate
service and seminarsNigel Kibel | Property Know How
http://propertyknowhow.com.au
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thanks everyone who replied.It has given me another pespective.
Im struggling to get off the mark and my enthusiasm to get started seems to be effecting from my good judgement.
thanks again!
RonRon,
To start with I would be suggesting you consider looking at 3-4 bedroom middle class homes. These have always been the mainstay of most portfolios and the least risky in poor markets.
Once you get some miles up you will be able to assess the more unusual investments.
I would not be considering serviced or hotel apartments – you have identified the reasons why.
Cheers,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi,
Perhaps if you could provide some sketchy numbers I could help you with the analysis. Things such as purchase price, likely rent, likely costs etc. The more you can give me the less I have to assume and the more accurate your answer will be.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve,
the QLD deal i was looking at looked like this-
studio hotel apartment
reputable older inner city Hotel
recently refurbished.
restaurant top floor.
sinking fund $109K
NOT self contained,
leased 5*5*5*5 years
asking price $80k
guaranteed return $6500 annually (CPI)
All Rates total $1100 annually.Most feedback i received pointed out that Growth would be poor because of low demand and that I would face difficulties with finance.
Im looking for my start.
RonPS> encouraging to see your involvment Steve
Hi Ron,
Sorry – today has been a busy one for me.
When evaluating the numbers I work through four questions:
1. How much down
2. How much back
3. How much risk
4. For how longAs many people know, I am not so much a capital gains investor as I am a cashflow investor. Nevertheless, by working through these numbers you can work out how much you need each year in capital gains to make your invetsment profitable.
Let’s take a look at the numbers then (Qns 1 & 2 of the 4 above).
How much down
Purchase Price: $80k
Deposit (say 20%): $16k
Closing Costs (say 5%): $4kCash Needed: $20k
How Much Back
Rent: $6,500
Interest (assume 7% IO): ($4,480)
Rates: ($!,100)
Management: ?
Body Corporate: ?
Repairs: ?
Insurance: ?
Other: ?Cashback: ?
I can’t tell based on your info, but it is likely to be negative cashflow.
Growth Prospects
You mention that the prospects for capital growth are minimal based on location so I’ll take your word. But you need to look at what is unique about this property as poorly located deals can still appreciate in value if there is an element of scarcity about some of the features.
Also, you need to consider the opportunity cost of what your $20k would earn (i.e. deposit and closing costs) should you just leave it in the bank. If we assume 5%, then the positive cashflow (or capital gains) would have to be more than $1,000 per annum for the investment to make sense.
I hope this has helped but by all means ask questions.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks Steve. I appreciate you taking the time to reply. I have decided to let that one go but am still real keen to get off the mark.
After reading your books i have become inspired to try and set a Map type goal for me and my wife.
It sounds like in your book that most MAP participants listed “needing constant encouragement from yourself’ as a vital ingredient to achieving a good result.
Can you suggest another method without a mentor, we could use to maintain some accountability and persistance when the need arrives.Ron
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