buying managed Quest apartments

Hi MI,

I looked at Quest serviced apartments a couple of years ago. There’s a couple of things to consider.

The bank believes these are higher risk investment, and there will be a lower LVR (so less funds from the bank). From memory ANZ said they would only loan 70% (check these figures) which means more capital and harder access to any equity growth.

The resale can be harder, as you are only marketing to people who want to buy into a serviced apartment complex. Effectively you cut out a lot of your market in comparison to say, reselling a house.

The other thing is the marketing – sign up to the quest service apartment marketing and they will hammer you with “specials” on a weekly basis. I ended up un-subscribing.

Rental yields and guaranteed returns are always great, it just needs to be weighed up with the rest – higher capital outlay, less access to equity, more difficulty in resale. Also there is the consideration that you are in a strata scheme, which can have its own difficulties and costs.

Consider your strategy and what your cashflow will be like after tax, as well as your cash on cash return. I much prefer to build duplexes (owning both sides), which has a higher yields, you are totally in control (no strata or if you strata title you own both titles) and although duplexes may also be a lesser LVR (as opposed to a standard 90% house – I got a 85% LVR) there is a much higher ability to resell. Consider what your exit plan is.

Best of luck,
Ben

I would agree with Ben serviced apartments make a bad investment. The cash flow is not that great and the capital growth is very poor. Often companies sell this stuff based on the cash flows however in most cases you need between 30 and 40% deposit because thee properties are considered commercial.