Hi All, I'm new here and just started learning property investing. My question is – What are hidden issues of puchasing properties for "pure investment" aka managed by "ARROW", "QUEST", "IBIS" etc?. Let say, deal is OK (theoretically) with reasonable rental yield, what are possible expenses or management issues unusual for normal investment?
Most of these services appartments seem to have a high yield but once to take into account your actual costs in terms of body corporates, management fees etc. the yield is usually not too impressive. Also many of these properties have limited capital growth potential and are often single purpose which limits your exit options in the future.
The trap is finance. They usually have to be over 40m2 to get 70% LVR and over 50m2 to get 80 LVR. Also most go onto commercial loan at higher rate. St George and a few others will do it at residential rate.
They are good in that you have less tenant issues, but you need a good mgmtcompany with proven track record in that location. It seems far better to go into one where they have been established for 3 or more years, as these apartmentsrely heavily on repeat customers for 30%+ ofthier business.
Another pitfallis long leases with low rent review figures. Try to get one that has CPI or greater and annual increases. Some have bi annual but that way your getting your increeases 12 months behind all the time.
Also check to see who pays for refurbishment,how much it costs and when its due.
Long leases will lock you into low capital growth if thier is no possibility of owner occupation and they cant attainhigher yeilds for the property. So great up keep of the building is essential. Some mangers run them into the ground over 20 years then walk out the door.
High mgmt costs canbe a real trap on some properties. Check them out closely. Im familiar with one on the GC with over 50% of rent in mgmt costs. There is also one on the River in Brisbane with over 15% of Net in mgmt costs.