- NicolaWMember@nicolawJoin Date: 2005Post Count: 1
I have just joined this site and would like some advice on an idea I have for investing in a unit. I am very new to all of this, so please forgive me if I sound a little out of my depth as to what I am trying to convey!
I am considering investing in a managed unit as part of a resort. The unit is on sale for $420,000 however I feel I could offer $385,000 and they would accept as it has been on the market for a while. The resort is in a very popular tourist place and the real estate has told me that they average occupancy is around 80% per year. I would receive worst case $1200 a week for rent for say 40 weeks of the year (best case $2200 per week in high season). We currently have $100,000 in equity in our own property which we live in, therefore I would like to use some of this to secure a loan for the unit. I have worked out that mgt and body corporate fees would be approx. 30% of the rent I receive and still I am ahead for the year. I guess I just want to ask if anyone has gotten into this type of investment before and whether I am looking at something that is a big risk or something that will give me positive cashflow straight away. The real estate told me that the unit will return 4% per year (going on last years figures, which I didn’t think was much??) however capital gains will improve and the area it is in, it is hard to see how it would not increas. (however I know this is not definate). Any advice would be very much appreciated. I hope I haven’t missed anything out to paint the whole picture? Thankyou [biggrin]Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Unfortunately due the nature of the forum I am unable to provide you with advice but hope i can offer a few suggestions.
Firstly, i assume that the Vendor is a private seller and not the original developer or the resort themselves. Why is he / she selling?
I think you need to check very carefully that occupancy rate is that all the year around as it seems high from a lot of the deals I have financed.
Secondly make sure that you are buying the property purely and utterly on the numbers and not as a place you would like to go and stay.
Buy from the hop pocket and not the heart when investing.
Also check very carefully what intended future expenditure you are up for and if the resport has any plans to ungo refurbishment.
One issue is that new resorts always bring a better return than the older ones and capital is needed to keep the older resports upto scratch.
On the finance side a lot of lenders struggle if the unit is in the management pool and cut back their lending ratios. Feel free to email me if you need assistance on this one.
IP funding and US property finance
Richard Taylor | Australia's leading private lenderhmackayParticipant@hmackayJoin Date: 2004Post Count: 197
Hi Nicola W,
Further to Qlds 007’s suggestions.
I have just settled on my second IP in a resort.
The first one was bought only about 2 years ago in Mackay Q. It was managed by the the resort managers. The management fees were very very high, some months I got no return, others I paid (they grabed) more than 60%. I beleived that I got the unit for a low price. Management rights were sold and better returns were structured. I sold the unit after about 18 months for 55% more.
The one just settled was bought for $120K. I decided to rent to the open market (not managed by the resort). A tennent moved in on settlement day for $280 pw. Take a look at Ko Huna Resort Mackay under General property.
To sell the first one I provide statements for the past 12 months. I would request this info.
Check out the BC: do they have a balance for planned maintenance, etc; will contribution rise?
Also, as Qlds007 says 80 % occ appears high.
Perhaps talk to some owners!
Hope this helps and good luck.[snorkle]
hrmYidn_Shalom25Member@yidn_shalom25Join Date: 2005Post Count: 43
Hi Nicola, welcome!
From what I inferred in your post, you have the goal of positive cashflow + cap growth but predominantly pos. cashflow with this deal, am I correct?…..If so, I would like to know what you think you could equally achieve in terms of positive cashflow if you were to invest the same amount of capital (assuming you are to use an 80% LVR with roughly $80,000 inclusive of closing costs on a PP of $385,000) in other property. I ask this, because I note that you are entering a two-tiered minority property market- Firstly, the niche of resort investing, plus you are entering at the mid-to upper-class level where affordability is lower and tenancy demand must ultimately follow at a lower rate (thereby putting much more accountability for occupancy with the managers, and taking that control out of your hands). Additionally, I am concerned with the variety of speculative numbers being thrown around ie. the agent (working for the vendor) telling you it averages 80% occupancy p/a. Frankly, they can tell you anything *speculatively*; why not ask them the same question again and get them to swear it as a legal guarantee and see how willing they are. I also want to caution you to structure your home equity ie. in a term deposit which you then use as collateral, as opposed to directly redrawing that equity from your home, as the latter could seriously damage your lifestyle if the deal went awry. Although I haven’t seen all the numbers on the deal; I think it would be a wiser idea to invest in multiple positive cashflow properties…say 3-4 using the same equity in a more affordable market.
kind regards, YidnDim SimMember@dim-simJoin Date: 2003Post Count: 11
I agree with all of the above. I have spent many years in the tourism industry and across the board 80% would be considered above average. An average occupancy would be 60%.
I would also be asking what marketing they have in place, do they have conference facilities etc that can bring in extra dollars, especially if it is a “pooled return”.
If the return is based on what your individual unit is rented out for, then be very careful as a lot of factors will dictate what units are let out. Managers will tend to own a unit or two themselves which will be rented first and then they develop favourites, cause any drama’s with management and yours then becomes the last to be rented.
What makes this resort different to the others? Why are people staying there?
Resort units can also be more difficult to re-sell.grossrealisationMember@grossrealisationJoin Date: 2005Post Count: 1,031
I also am a novis with this type of investment and for that reason and that reason alone.
I would check all the figures this is investing out of the norm which I like but I wouldn’t advise this unless you are between 17 and 20 high income and want to take a risk then my answer would be go for it.
It is then a risk for profit plus learning.
Do your own research of there figures people who are selling you something have there own agender which may not be the same as yours.
I don’t know your circumstances so I can’t help with more specifics.
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