Hi,
I’m new to the world of investing, but have been reading this forum with keen interest for some time.
I am looking to make my first deal, and I have come across what appears to be a good deal, however I can see a few problems, and thought I would get all your thoughts on it.
The property consists of 2 x Studio apartments and is ties in to a commercial lease with the motel is a part of. Based on the guaranteed rental income, the property is +cf – Just ($1kpa). However, I will need to put around 8k of my own money into to cover purchasing costs.
While I’d be happy with a return like this, I’d be having to sink a good portion of my cash (I only have around $10k) and therefore it would take 8 years of positive cashflow to recoup my initial purchase cost. This means I’m then relying on appreciation to make real money off the property, and I’ve heard that properties of these types do not appreciate as readily as a residential type unit, as the number of buyers is limited due to the situation with the lease etc.
Any comments would be appreciated and I look forward to hopefully making a contribution to this forum as my experience grows.
Hi Ficus
Be very careful with something like this. The rental guarrantees are meaning less if the company ends – which many do.
The potential capital growth may be very limited as these things are hard to sell, and harder to finance than the average unit.
Also watch out for management costs blowing out and for restrictions on what you can and cannot do.
Terryw
Discover Home Loans
Parramatta
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Hi Terry,
Thanks for the advice, this confirms what I suspected. I also think it will be difficult for me to finance.
Can these types of properties work, or is it best just to avoid these scenarios altogether?
My current feeling on this property is that it’s going to require too much of my own money for it to be profitable from day one, and given the limited capital appreciation, probably won’t give a return.
Hi everyone
I’m also new to the PI scene and loving the advice handed out on this forum. The re.com sites are full of hotel managed apartments. Is the oversupply due to it being hard to finance or the fact that they aren’t wise investments. Heaps of apartments in Cairns gaurentee 7% + returns, which like was said is meaningless if the company goes bust. Is this likely in Cairns, some of the apartments look great, have potential for residential market if company goes bust aswell.
Also looked at student accomadation in Brisbane, heaps of talk about the increase in int. students, but plenty still on the market. 104 Margaret St shows reasonable returns but tiny rooms and 30 or so of them 4sale.Schoofy
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