Investment in Apartments given on long lease to Rydges Hotel/Quest/UAW

[jamesnz]

Hi there

I have about 150K surplus

[jamesnz]

Hi there

some bug in my lpad
posted before I could complete the thread
Anyways
I was thinking of investing in apartments which are given on long lease to Quest, Rydges Hotel and UAW etc. In Wellington
There are several such listings always available on Trademe

My aim is to get a better return on my current corpus of 150k ,and further yearly savings of 30k per year

So if I invest about 250to 275K I can become debt free in 5 years

The agents tell me that I will get a nett return after expenses of body Corp rates and management fees of 7-8%

Is any member owning any such Properties and are there any hidden expenses I should be aware of ?
Is the return sustainable over a long period ?

Will you advise a first time buyer to invest in it ?

Thanks for advising

P.S. I have made another thread also by mistake I think the only the moderators can delete it.

[eri]

how long is the lease?

quest have some seriously long leases which limit your ability to exit

as for the return, it should all be easily calculated by looking at the lease and the last year's returns

i don't know about wellington but for the last 8? years in auckland hotel pool apartments haven't returned esp. well for owners

but that's sort of changed this year as there is a serious shortage of hotel space and leases can be renegotiated

http://www.trademe.co.nz/property/residential-property-for-sale/auction-1058998003.htm

http://www.trademe.co.nz/property/residential-property-for-sale/auction-1134229848.htm

but it all depends then on what the lease looks like

if the return in 7%

why is the current owner selling?

[Beano]

how long is the lease?

quest have some seriously long leases which limit your ability to exit

as for the return, it should all be easily calculated by looking at the lease and the last year's returns

i don't know about wellington but for the last 8? years in auckland hotel pool apartments haven't returned esp. well for owners

but that's sort of changed this year as there is a serious shortage of hotel space and leases can be renegotiated

http://www.trademe.co.nz/property/residential-property-for-sale/auction-1058998003.htm

http://www.trademe.co.nz/property/residential-property-for-sale/auction-1134229848.htm

but it all depends then on what the lease looks like

if the return in 7%

why is the current owner selling?

The hotel is generally not interested if the yield is 6.5pc to 7pc as their funds invested in the hotels are a lot more
Yes i have read the same thing the hotel trade is booming and there is a large shortage of rooms

[Nick G]

It seems like an investment with very little control - you're dependent on the ongoing competitive advantage of the hotel operator. Also if their fees (costs) went up separate to rents your numbers could quickly look skewed. If you're choosing between this and a house I'd go for a house.

[jamesnz]

It seems like an investment with very little control - you're dependent on the ongoing competitive advantage of the hotel operator. Also if their fees (costs) went up separate to rents your numbers could quickly look skewed. If you're choosing between this and a house I'd go for a house.

Hi Nick

As my budget is limited to 250K to 275K I will not get any good house near the city
(I want to take a fixed 5 year loan only to the extent I can pay off in the period)
I will have to go to the lower demand areas of Wellington, which I was trying to avoid.
Moreover, I was thinking that it would be easier to sell these types of properties rather then low end houses.
But I now realise that at the end of 5 years when I am ready to offload this house, if the interest rates are any where near 7%, no one will touch this apartment, as it will make no sense for them to invest.
The returns are capped whereas the interest rate the investor has to pay is variable.
So if I have to sell I will have to take a massive loss to make the apartment give 2-3% more return then what the banks are charging.

Will rethink over the entire scheme

Thanks for advising

[Don't believe the Hype]

Hi Nick

As my budget is limited to 250K to 275K I will not get any good house near the city
(I want to take a fixed 5 year loan only to the extent I can pay off in the period)
I will have to go to the lower demand areas of Wellington, which I was trying to avoid.
Moreover, I was thinking that it would be easier to sell these types of properties rather then low end houses.
But I now realise that at the end of 5 years when I am ready to offload this house, if the interest rates are any where near 7%, no one will touch this apartment, as it will make no sense for them to invest.
The returns are capped whereas the interest rate the investor has to pay is variable.
So if I have to sell I will have to take a massive loss to make the apartment give 2-3% more return then what the banks are charging.

Will rethink over the entire scheme

Thanks for advising

may be time to pay for some advice?

[wodger]

If it's Rydges in Wellington I would do some research on this topic:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10580342

This hotel used to be the Holiday Inn in Wellington and it was in the papers because it wasn't paying the guaranteed rent to investors. This wasn't Holiday Inn's fault apparently, they were busy and paying whatever they were meant to, to the building owners. I can't say who, but my source for that info is good. But the money wasn't making it to investors. So, the name might have changed, but if it's still the same owners or a similar mix of shifty b*stards then I would not put money there.

[Nick G]

My brother is about to go unco on his first property in one of these "less demand" areas, where demand is a lot less less than it used to be. By the time he's cleaned it up and renovated etc it'll make 7.5% GY with good equity locked into 5 years lending at under 5%. Just buy something in an area that is improving, make it nice and let the market do the rest. You'll be fine. In the meantime you're losing maybe $5-7K to the market each month you sit on your hands.

[brokerman]

may be time to pay for some advice?

Warwick Walker gets my vote. [email protected]