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What are the pros and cons?
Thanks in advance
Thanks in advance
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The hotel usually pays you a very low rent - lower than the expected market rent. -
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 investmentLast edited by eri; 11-01-2019, 10:21 PM.have you defeated them?
your demonsComment
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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.Comment
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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 happyhave you defeated them?
your demonsComment
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Originally posted by Beano 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.Last edited by Aston; 12-01-2019, 08:22 AM.Comment
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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.Comment
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Thanks everyone.
Appreciate it.Comment
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When you looked into it 10 years ago NickOriginally posted by Nick G View Post
1: what were the returns then (in and out of the pool)
2: while in the pool was it subject to GST
3: I often see hotels refurbishing their rooms . Who pays?https://i.stuff.co.nz/business/10647...-refurbishment
https://i.stuff.co.nz/business/88716...12m-renovation [/url]
hotels seems to need a major refurbishing every 25 years
The cost of this is pretty major and has to be accounted for in your depreciation hence reducing the net yield.
So when doing the numbers you have to look at the whole leasing cycleLast edited by Beano; 12-01-2019, 08:37 PM.Comment
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I would need to check because he sold it later. However my understanding is that for most of these you buy a regular residential property, lease it to the hotel and the hotel runs the hotel operation. Your lease should not be subject to GST and neither should the asset. This is how accountants are advising folks to run their AirBNB operations to avoid the asset having a GST liability attached to it past $60K income per year.
I think the yields were low at the time. Again I will ask it was a long time ago.
I am pretty sure the owner pays but it would be a good idea for the hotel to help as it would then incentivize the owner to stay in the poolFree online Property Investment Course from iFindProperty, a residential investment property agency.Comment
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In my case the chain stipulates that redecoration is required to their standard every ten years. Owner pays. I don't mind that because the apartment is being meticulously maintained, throughout the ten year period, at the chain's expense. If I object, I can easily remove it from the pool. But why would I do that, the chain is paying market rent and the presentation of the property is always immaculate.
Some of the apartments in the complex do have GST liabilities, depends on how they were originally purchased, mine don't and I would avoid those that do. Some of the apartments are also locked in to a lease of about 30 years, I would also avoid those.Comment
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Not a criticism Aston as we all have to make decisions and choose what works for us but 3.8% seems a bit on the low side ?
Originally posted by Aston View PostComment
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