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  1. #1
    Join Date
    Sep 2012
    Posts
    227

    Default Pros and cons of buying an apartment and renting back to a hotel

    What are the pros and cons?

    Thanks in advance

  2. #2
    Join Date
    May 2008
    Posts
    3,648

    Default

    The hotel usually pays you a very low rent - lower than the expected market rent.

  3. #3
    Join Date
    Sep 2008
    Posts
    7,647

    Default

    at least some of the auckland hotels are now paying the owners good rates

    some things to look out for

    1 - the exit clause on some of these leases are very restrictive for the owner....someone like the ramada? may be offering an 8 year term with the hotel having 2 right of renewals.....so if the room makes them good money and the building remains sound they may keep it for 24 years

    2 - if the building has issues, the lease could say they walk immediately, and if the market falls flat instead of wearing it for 24 years, they can leave after 8 years,

    3 - auckland's new bed tax on hotels has bumped up the rates from maybe $1500 to $3800

    ie if the owner rents it out to tenants themselves or through a pm for 6-12 month leases, the rates are normal $1500?

    but if the hotel rents the apartment out short-term, the rates are commercial, $3800? which can seriously eat into the ROI

    4 - gst issues are thorny, hotels generally claim back the gst when the building is built...but if an owner takes it out of the pool the gst has to be paid back

    5 - some leases allow the owner to remove from the hotel pool ONLY to use as owner-occupier, meaning they can't be rented out to tenants, greatly reducing the leverage the owner has when negotiating with the hotel over new leases and the usefulness to other investors as an investment
    Last edited by eri; 11-01-2019 at 10:21 PM.
    have you defeated them?
    your demons

  4. #4
    Join Date
    Jul 2005
    Location
    NZ
    Posts
    986

    Default

    I have a several of these.

    All leases are not equal. You may get the opportunity to negotiate the lease yourself. I have done this with each purchase.

    Market rent applies. Reviewed every 24 months.

    Owner can remove from the hotel pool at 12 months notice to either rent out, live in or to sell.

    No GST issues at all. I am not GST registered. Hotel pays GST.

    Owner is paid guaranteed fixed monthly rental. I have never had a late payment and contract may be cancelled by the owner immediately if rent is more than 7 days late.

    No tenant issues. I have owned these for four years, in that time there has been no damage at all, deliberate or accidental.

    Rooms inspected and cleaned impeccably on a daily basis.

    All of my rooms are over 10 years old and all look as good as they did when new. I will be redecorating soon but only because colours are out of date. Carpets still in excellent condition, no stains or wear.

    Not covered by the RTA.

    Capital gains in line with residential apartments.

    Most trouble free real estate investment I have made. I am always in the market for more.

    Owner can use the room personally for 20 nights pa, for an admin fee and a one off cleaning fee.

    Don't buy in Auckland.

  5. #5
    Join Date
    Mar 2015
    Location
    Brisbane Wellington Auckland
    Posts
    831

    Default

    Quote Originally Posted by Aston View Post
    I have a several of these.

    All leases are not equal. You may get the opportunity to negotiate the lease yourself. I have done this with each purchase.

    Market rent applies. Reviewed every 24 months.

    Owner can remove from the hotel pool at 12 months notice to either rent out, live in or to sell.

    No GST issues at all. I am not GST registered. Hotel pays GST.

    Owner is paid guaranteed fixed monthly rental. I have never had a late payment and contract may be cancelled by the owner immediately if rent is more than 7 days late.

    No tenant issues. I have owned these for four years, in that time there has been no damage at all, deliberate or accidental.

    Rooms inspected and cleaned impeccably on a daily basis.

    All of my rooms are over 10 years old and all look as good as they did when new. I will be redecorating soon but only because colours are out of date. Carpets still in excellent condition, no stains or wear.

    Not covered by the RTA.

    Capital gains in line with residential apartments.

    Most trouble free real estate investment I have made. I am always in the market for more.

    Owner can use the room personally for 20 nights pa, for an admin fee and a one off cleaning fee.

    Don't buy in Auckland.
    What sort of net yield do you get ?

  6. #6
    Join Date
    Sep 2008
    Posts
    7,647

    Default

    certainly the hotels should be keen to make it work

    in the old days they would own the land + building which resulted in huge upfront costs if they tried to grow the brand in a competitive market

    but with the business rationalise? theories that emerged 30? years ago it was decided hotels were ONLY in the business of renting our short-stay rooms

    and if they could perfect that model they could rapidly grow their brand without the huge investment required to buy and build new hotels by passing that cost to real estate investors

    that way a hotel chain like ibis can take a punt on a hotel in queenstown, get it custom? built to their own specification but with other people's money

    if the hotel ends up too big, they can stop leasing all the rooms from owners

    if the area has a major disaster etc and tourists stop coming, they can finish all the leases without crippling the company

    so there is a lot in it for hotels if they can keep owners happy
    have you defeated them?
    your demons

  7. #7
    Join Date
    Jul 2005
    Location
    NZ
    Posts
    986

    Default

    Quote Originally Posted by Beano View Post
    What sort of net yield do you get ?

    3.8% But I don't invest on numbers, I'm mortgage free and I just want a trouble free investment. In the time I've owned them, I have personally inspected on one occasion only and replaced one small light fitting. Most guests are professionals, travelling on business.


    Personally I would invest in CBD area only in a complex without a pool. Tourist destinations attract younger people/families etc. meaning more wear and tear, more noise, translating to higher BC fees. Out of Auckland only.

    Checking the online guest reviews, is an easy way to get a good feel of the place.
    Last edited by Aston; 12-01-2019 at 08:22 AM.

  8. #8
    Join Date
    Mar 2015
    Location
    Brisbane Wellington Auckland
    Posts
    831

    Default

    Quote Originally Posted by Aston View Post
    3.8% But I don't invest on numbers, I'm mortgage free and I just want a trouble free investment. In the time I've owned them, I have personally inspected on one occasion only and replaced one small light fitting. Most guests are professionals, travelling on business.


    Personally I would invest in CBD area only in a complex without a pool. Tourist destinations attract younger people/families etc. meaning more wear and tear, more noise, translating to higher BC fees. Out of Auckland only.

    Checking the online guest reviews, is an easy way to get a good feel of the place.
    Where are they located ?

  9. #9
    Join Date
    Jul 2005
    Location
    NZ
    Posts
    986

    Default

    Quote Originally Posted by Beano View Post
    Where are they located ?
    Tauranga...

  10. #10

    Default

    My friend owned one going into the GFC and it tanked in value for several years.

    I can't get my head around them. Maybe they're a better proposition than they were 10 years ago but I can't see how. Always open to be convinced otherwise but it seems to me that you're funding the hotel's biggest cost and taking the risk for not enough return.
    Free online Property Investment Course from iFindProperty, a residential investment property agency.


 

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