Advise on buying units of a "resort"?

[jack2016]

Hi what advise would you give someone looking at buying a unit in a "resort".
Say it's a 3-4 star motel type thing.
You own a unit and lease to the management of motel.
You pay bodycorp, rates, get to stay there x days, and have "income" (i think overall nett income divided by number of units).

What traps do i look out for?
What it they want to do a major update/repair - does the bodycorp fee go up for that one off?
Why would people want/not want to own these units?
In fact do i actually own anything?!

Thanks very much

[Nick G]

I would try to talk you out of this to be honest.

You are signing up to pay a (high) fixed cost of a unit you have no control over and is highly dependent on people continuing to spend money during a downturn.
If there's an major repair your bills will go up. As the property gets older and less competitive your bills will go up. Eventually you will face a reburb bill.
Your ability to get an income is 100% dependent on their ability to run a successful business.

So you own all the risk and get less of the upside.

These start to appeal at some point each cycle and rapidly lose their luster in a down market.

[Rosco]

My response would be similar to Nick, what control do you have?

There are some buildings like this at the Mount for example, where owners are getting a bad deal but struggling to get rid of the management company.

Also make sure you get advice on GST

Ross

[jack2016]

Thanks. I shall move on.

[jack2016]

PS is it worth trying one's luck by offering less than half of the asking price? That just sounds like a waste of time right?

[eri]

hotels do quite well for both operator and owners when they are pretty much booked 365 days a year

heritage hotel in auckland welshed on its contracts during the GFC when hotel bookings dropped drastically

other operators just pulled out of the buildings leaving owners in the lurch

others paid such low returns to owners that they pulled out of the hotel contracts, metropolis

resort towns even more likely to be be boom or bust

don't think even queenstown can boast 365 days a year solid bookings in the high end, new build, expensive market

don't be suckered by glowing booking predictions based on peak period

or the current shortage always keeping bookings high

[Nick G]

Not really. Keep your powder dry for better opportunities

PS is it worth trying one's luck by offering less than half of the asking price? That just sounds like a waste of time right?

[Aston]

Not all contracts on these complexes are equal.

I own a unit like this and am currently considereing another unit in different complex. When I purchased I had the opportunity to live in the unit, rent it privately or negotiate a contract to suit myself.

I receive a guaranteed return of 6% plus. Rent reviews, with a ratchet clause, occur biennially.

If I want to sell the unit, I can withdraw from the letting pool with 9 months notice.

I can also withdraw from the letting pool if I or a family member want to live in the unit.

I can stay in the unit for a fixed amount of nights each calendar year, which doesn't affect my income but there is an admin fee and cleaning cost involved.

Yes I need to keep the place decorated and maintained to their standard and their standards are high but so are their guests. I have inspected the place recently and despite the property being 10 years old, it still looks almost brand new.

I have owned many rental properties over the years and this is by far the least troublesome and simplest to manage.

[Beano]

Not all contracts on these complexes are equal.

I own a unit like this and am currently considereing another unit in different complex. When I purchased I had the opportunity to live in the unit, rent it privately or negotiate a contract to suit myself.

I receive a guaranteed return of 6% plus. Rent reviews, with a ratchet clause, occur biennially.

If I want to sell the unit, I can withdraw from the letting pool with 9 months notice.

I can also withdraw from the letting pool if I or a family member want to live in the unit.

I can stay in the unit for a fixed amount of nights each calendar year, which doesn't affect my income but there is an admin fee and cleaning cost involved.

Yes I need to keep the place decorated and maintained to their standard and their standards are high but so are their guests. I have inspected the place recently and despite the property being 10 years old, it still looks almost brand new.

I have owned many rental properties over the years and this is by far the least troublesome and simplest to manage.

Six plus percent is pretty good these days (is this net of all cost?)
Have you achieved rises on the reviews?
Does the hotel pay the rates and insurance?
I must agree with you ..."this is the least troublesome and simplest investment " I have too! (Leasing property to hotels ....i would own a dozen if i could !)
The biggest problem I have is they pay too early! (It affects the GST payment to IRD therefore the cashflow) lol

[Anthonyacat]

The biggest problem I have is they pay too early! (It affects the GST payment to IRD therefore the cashflow) lol

Little confused, is this a joke? Since you only pay a maximum of 15% of any income to the IRD, an early payment is always a good thing for cashflow.

[sidinz]

I'd advise anyone considering one to do their homework. There's one I know of that's not a huge complex, but there are always multiple units for sale. Must be a reason for that.....

[Beano]

Little confused, is this a joke? Since you only pay a maximum of 15% of any income to the IRD, an early payment is always a good thing for cashflow.

Lets look at a GST registered business
Cash basis
Two months periods
Lets look at April-May period
Receipts received April-May are paid to IRD on the 28th of june
So the tenant makes a payment of $98,000 on the 31 May for June rental
The landlord has to pay $12,812 to IRD on the the 27 of June
If they paid on the correct day ie 1st of June then the $12,812 to IRD is on the 28th of August
Quite a difference. ..a $12,812 payment deferred for 2 months
So in this case early payment is NOT a good thing
Ps i assume they do it early for the reason ...earlier refund

[Beano]

At the moment quality hotels are having a boom
There seems to be a shortage in NZ and Australia

[Aston]

Six plus percent is pretty good these days (is this net of all cost?)
Have you achieved rises on the reviews?
Does the hotel pay the rates and insurance?
I must agree with you ..."this is the least troublesome and simplest investment " I have too! (Leasing property to hotels ....i would own a dozen if i could !)
The biggest problem I have is they pay too early! (It affects the GST payment to IRD therefore the cashflow) lol

6 percent is gross. Expenses are contents insurance, rates, BC fees and maintenance. Maintenance is minimal, I've only needed to replace one light switch in over 3 years.

No GST component on rental income, Management Company pays the GST.

Yes I always achieve increases on the reviews. Guests are Corporates and Overseas Tourists mainly.

[Beano]

6 percent is gross. Expenses are contents insurance, rates, BC fees and maintenance. Maintenance is minimal, I've only needed to replace one light switch in over 3 years.

No GST component on rental income, Management Company pays the GST.

Yes I always achieve increases on the reviews. Guests are Corporates and Overseas Tourists mainly.

So what is the net yield ?