If you’re searching for your next apartment, and you want to look into serviced apartments. You might be surprised at what you find – or don’t find. Not all serviced apartments are the same, so you’ll want to understand the difference between an apartment complex that offers serviced apartments and one that does not before you sign on the dotted line with an agent or landlord. This article will discuss some of the pros and cons of serviced apartments. So you can make an educated decision before choosing where to live next!
What are they?
Invest in one of our major cities for an affordable and hassle-free return on your investment with a long-term lease and fixed annual rent increases.
An opportunity like this would seem too good to pass up in a cash-strapped economy.
It’s not all good, though.
Greetings and welcome to the world of serviced apartments.
Are they different from hotels?
Serviced apartments are stand-alone rooms within a hotel development.
In the past, a hotel was typically owned by one individual or a group of individuals.
Operators of hotels tend to have to pay high-interest rates, which is why it can be so difficult for them to gather the capital for a project.
Developers invented a way to help reduce their cost of borrowing money, increase their ability to retain equity, and stay away from outside lending by strata-titling the apartments and selling them one by one to individuals, who would fund them with their own money.
Some hotels offer a fixed lease arrangement to purchasers of their properties. They may share the income generated by that property (or by all the hotels) among their shareholders as part of their enterprise.
What makes some investors buy serviced apartments?
Serviced apartments are attractive investments for many. The initial costs can be lower than traditional real estate, the return on investment is typically higher, and the income is steady. However, serviced apartments are not without their drawbacks. Investors need to be aware of the risks that may come with this type of property before they make a purchase.
For those who are used to investing in houses, a guaranteed rental return of 6% or 7% with no vacancies seems very attractive.
Most serviced apartments are leased back to a hotel operator, who might have a five- to ten-year lease to manage the property as a serviced apartment hotel.
Body corporate fees may even be paid by the operator in some cases.
The reason investors should be cautious, however, is as follows.
How did my rental returns turn out?
One of the most common questions renters have is about their rental returns. After all, when you spend a lot of money renting an apartment for a month or two. It’s easy to feel like you deserve something back. Rental companies are aware of this, which is why they offer rental returns in the first place. However, this isn’t always clear during the booking process and it can be difficult to figure out how much you’re entitled to. Here’s what you need to know about rental returns.
Given that serviced apartments are sold with promises of high income and long-term stability, it’s alarming that these assumptions are often just not valid.
Unfortunately, many rental guarantees don’t do much at all and if they do, you end up taking a loss by the time you rent again.
Tourists and business travelers typically rent serviced apartments.
Accommodations are typically cyclical businesses and are susceptible to external shocks such as terrorist attacks and airline strikes.
Rent returns often fall short of expectations because of this.
It’s also important to know who exactly underwrites rental guarantees.
The guarantee could be worthless if the renting company or person goes bankrupt.
Investors should generally avoid rental guarantees. Even though they offer some relief, what they conceal is the real danger.
To put this in a better perspective, you might want to ask yourself ‘is this really a wise investment if the seller needs to offer me a rental guarantee?’
One more question to ask is how long is the guarantee good for? – if the length is only 1-2 years, then the amount you can make is more important.
Does my bank seem uninterested in my investment?
It is also difficult to obtain financing for serviced apartments.
The majority of lenders are not interested in these investments and will only lend a small percentage of the purchase price or even refuse to lend at all.
A lender’s criteria for the size or location of serviced apartments is not unusual.
It’s worth how much?
It’s no fun to find out your property has lost value.
There are many owners of serviced apartments who face this reality.
Serviced apartments are only available to investors – owner-occupants are effectively shut out due to long leases.
Capital growth is severely restricted as a result of this problem.
Serviced apartments generally have poor capital growth, though there are always exceptions.
Why would they need to offer a rental guarantee if they didn’t?
As more and more service apartments become available, the oversupply problem will decrease their capital growth and will impact potential owners. The problem of oversupply.
Thus, the potential high returns are less appealing after investigating the risks involved.
Also, there are many more reasons not to invest in a serviced apartment than there are reasons to do it.
Let’s say, what obligations do you have if you renew your lease?
Often, apartment investors that purchase service apartments end up losing a lot of money, not even breaking, due to heavy and expensive monthly costs that aren’t recuperated by the high rents.
It seems that serviced apartments are great for hotel operators, tourists, and business travelers, but not necessarily for investors.