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Off-The-Plan Resort Investments

Discussion in 'Real Estate' started by D&K, 6th Feb, 2006.

  1. D&K

    D&K Well-Known Member

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    Has anyone made or actually know of anyone making a decent return (cash and CG) out of investments in off-the-plan beach/island resorts. These are fairly common in North QLD particularly Port Douglas, Whitsundays, and I've just seen one for Magnetic Is (Townsville) with 6% guaranteed net return for the first two years (sounds like overpricing at sale time to me).

    They look glossy on the surface but I have always been skeptical about these as being inundated by management fees, letting fees, partial occupancy, etc, that they only seem good for creating negative gearing tax claims if you have too much money (I'm not familiar with that concept).

    Are these fears ill founded? Are there positive experiences of good returns and capital growth out there?

    Dave
     
  2. Jacque

    Jacque Team InvestEd

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    Not my cup of tea, Dave, as I like to retain complete control over most of my properties :)
    The trouble with anything that has a body corporate attached is that, when maintenance costs and strata or management fees rise, you have little say. Also, with most holiday managements in newer buildings, you find you are often tied to the live-in manager onsite as your only choice for PM and have to then fork out big time for fees etc. On the other hand, however, if you have a very competent one who can have your property vacated for most of the year, then the fees may be worth it :) Your decision.

    Rental guarantees always make me skeptical. They are usually factoring this into the purchase price, as you're already aware, and you should only compare apples with apples ie: look at similarly rented properties nearby with other PM agencies to ensure that, once the guarantee period is over, you will actually still achieve a worthwhile return.

    Yield isn't everything, of course, and if looking to buy in one of these complexes ensure you are fully aware of all costs, likely vacancy rates (and don't just take the PM's word for it, ask to see evidence of similar units achieving such rates).
    Are the units likely to also be attractive to owner occupiers? This is important, as owners generally take better care and pride in their PPOR, thus increasing the likelihood that the complex will be well tended to.
    What is the ratio of owners to renters?
    Why would a tenant select your unit over others? Ensure that you have something a little extra, even if it's a bigger corner balcony or better aspect etc. Consider adding something to the unit to make it more popular than all the others. Eg: Plasma TV, dishwasher/washer and dryer, more bedding etc.

    I'd also be getting your solicitor to have a careful look at the contract and ask all the appropriate questions for this type of investment. Try to use one who is familiar with these dvpts.

    Let us know when you buy one and I might take a week off to investigate it myself with the hubby and kids :) At mates rates, naturally ;) ;)
     
  3. TryHard

    TryHard Well-Known Member

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    Hi :)

    I work mainly on the online tourism industry and my biggest concern with any of these resort investments would be the likelihood of maintaining a decent long term yield, based on what they are actually capable of selling in the current and future marketplace.

    Any resort upwards of 20 or so rooms needs to rely on travel wholesalers (who then sell via retail travel agents) and inbounders (companies that bulk buy allotments and farm them out overseas to the travel trade) so there are very few that attract full yield direct business. The wholesalers take 25-30% commission, before any management fees and other expenses.

    So if you're being sold a unit that has a potential "rack rate" (advertised tariff) of $200 per night, the bulk of these might be allotted to the companies that can move the inventory (wholesalers) at say $150 per night. less the cleaning fees, management fees, maintenance etc. (and when I say allotted, they set the rooms aside - unable to be sold direct - and the wholesaler hands the unsold rooms back - usually 14 days prior to travel - which is why the 'last minute' travel sites have so much to sell !

    In the Far North of Qld (where I work the most) you might have resorts who average 60% occupancy (remembering in the 'green season' they can be virtually empty). If you do your sums around those sorts of figures, you'd probably find the guaranteed 6% yield is as you suggest a sales strategy unlikely to be met in later years. In the north also, they're heavily reliant on international visitors, and while the fear of terrorism etc. might be forcing some domestic visitors to consider Cairns/Townsville instead of Bali, you need to factor in the likely buying habits of the overseas market (and the fact they usually buy package deals from whichever products are marketed by the wholesale/inbound trade - which is usually whoever has given them the best commission deal - meaning they can change allegiance very quickly and shift where the bums in beds are directed).

    Management rights have been bought up across the state by companies like S8 / Breakfree (now Stellar Resorts) meaning you see cut price rooms across a range of good quality resorts, and last minute portals like www.wotif.com are popular, causing consumers to book very short notice, cut-price rooms. This makes it all the more competitive for your chosen resort, reducing the chance of ever achieving a full "published rate". You'd need to be confident with the appointed resort management and their track record, along with whatever guarantee they'll stay put (lots get in and out of the management rights after building up a location and on-selling at a profit).

    I've never heard of anyone making spectacular yield or growth in these investments, but I've not really looked into them too closely because of my distrust of the trends in tourism in general and the power-brokers affecting the marketplace. I think they are very much in the 'holiday property' category of being suited to the heart not the head :)

    Just another point of view

    Cheers
    Carl
     
    Last edited by a moderator: 7th Feb, 2006
  4. D&K

    D&K Well-Known Member

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    Jacque, Carl,

    You have just reconfirmed my existing suspicions, and added a few more (thanks Carl)! No, Jacque I'm not that keen on buying one as I like having control, and there must be better deals on offer. I'm just getting really curiuos as someone must be buying these and I was beginning to wonder if I'd missed the hidden benefits somewhere. Different resorts have been on offer for years now and so there must be a group of buyers out there, are they all unhappy? :confused:

    Dave
     
  5. TryHard

    TryHard Well-Known Member

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    Dave

    Just guessing, but I dunno how many buy truly for yield, or to offset some tax or for holiday use for themselves, or just flat out buy 'cos they're in holiday mode at the time.

    Also I think any that have bought in the last few years have yet to experience a major downturn (like pilots dispute etc) so maybe the yields are 'acceptable', and maybe a lot of them are yet to have their rental guarantee period expire.

    I have never understood how some of the 'built for investment' resorts ever sell any units, because it takes some pretty good connections and a very strong marketing strategy to achieve the types of occupancy they are targetting.

    There are probably still some good returns out there from the right sort of managed holiday property, but the purpose built stuff in the 'backblocks' like I've seen advertised would be a real worry I reckon.

    Wonder if anyone has good experiences to share ?

    I'm off to Palm Cove for a holiday with the family soon - I'll let you know if I see any bargains ;-)

    Cheers
    Carl
     
  6. Leandro

    Leandro Well-Known Member

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    D&K are you talking about the style of places you see advertised in the front pages of the Australian Property Investor magazine every month?
     
  7. D&K

    D&K Well-Known Member

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    Yep, often just inside the front cover and more later on, and other investment magazines, they often find their way into The Australian and other newpapers, QANTAS inflight magazine often has them from Colliers (amoung other types of property as well).

    I've just never come across someone who has invested (or admitted to investing) in them, but it's a bit of a market of it's own so there must be a sustained group of buyers. I just wondered if I was missing the point somewhere and someone could enlighten me? Can you?

    I had an accountant who invested in a relatively boutique villa in the Snowy Mountains and was quite happy, but I think that was mainly because of the discount for his own use and going back every year (adjusting his tax claim for self use of course). Perhaps that is the advantage most people get if they always want to go back to the same location.

    Dave
     
  8. Jacque

    Jacque Team InvestEd

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    Been thinking of going there myself with the kids for a holiday in July, Carl. Have you been before? If so, do tell. I'm still tossing up between Cairns and a tropical island..... Ah, the choices we have to make :)
     
  9. TryHard

    TryHard Well-Known Member

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    Hey Jacque

    Palm Cove is pretty cool - we're staying at a great place called www.sanctuarypalmcove.com.au - not the cheapest nightly rate but I reckon a bargain for what's included (they're $1M apartments, talking about investing in tourism properties ;-) )

    We also love Trinity Beach - bit less developed than Palm Cove - www.amarooresort.com has absolutely gobsmacking ocean views from pretty much every room - they can do adjoining room style things for families. Short walk for great steaks at the local pub, flash restaurant on the esplanade, v quiet beach, 15 mins in to Cairns shopping etc. Also stupidly good value IMHO having seen most of the properties in the region.

    Sort of depends what you and the fam like doing. To me the islands are best for swimming, eating and lazing, places like Palm Cove, Trinity Beach and Port Douglas are cool for basing yourself in a nice place and maybe getting out to reef, up on Skyrail etc. but still get to eat out when nec.

    And one last option - for celebrity retreats in the rainforest you can't beat www.executiveretreats.com.au - located through the region around Port Douglas to Cape Tribulation, and honestly some of the properties are just the things dreams are made of. They're fairly low key and many people don't even know where they are located - some of which is to let the Brads and Angelina's run around without worrying about being spotted :)

    Disclosure - the websites I've mentioned are all clients of my business ... but I know they are really nice management and great value so I don't feel bad ;-)

    There's just so many choices up there its impossible to cover ... ! But if you have any specific questions please post them I'll try my best

    Cheers !
    Carl
     
  10. Medine

    Medine Active Member

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    Hi Guys,

    I was amazed when I visited Palm Cove recently that I couldn't find a casual meal for under $30 :eek: !! Except for the one fish and chip shop in town, which was a fairly standard looking fish and chip shop. I mean, the meals we ate were great - but there's nothing but five star. And sometimes I just don't feel like doing the silver service thing.

    Anyway, now that I've had my rant, I had a much better time at Port Douglas, where there was plenty to choose from, in terms of food, accomodation, and things to do. IMHO a much more satisfying choice!

    Cheers, Medine
     
  11. TryHard

    TryHard Well-Known Member

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    Yep, definitely very few backpackers in Palm Cove, but there is some awesome quality there. Salmon steaks at The Reef House - pretty damn good. We'd always look for self-catering apartments in Palm Cove, if you can kill breakfast and lunch in your own accommodation, its feasible to splurge a bit on a nice eatery for dinner. Otherwise you're up for $20 brekky, $30 lunch and $30 dinner - mind you, depends on the occasion, and budget.

    Port Douglas is fortunate in that it has a foot in both camps :) - the Tapas bar opposite the Court House hotel is awesome at $6-$8 a plate, or if you are able to spend $150 per head, restaurants like Nautilus are pretty hard to beat ;-)

    There's so few Aussie pub meals left - that's why we love the Trinity Beach pub - but I think its under redevelopment, so no doubt the steaks will go up 200% soon - probably best to pre-eat while its still affordable ;-)

    Our mate has just built a property to die for on one of the last 270-degree ocean view blocks high above Trinity Beach, on the hillside above the esplanade. He has an easement through to the council park that fronts the esplanade. He's not into property investment at all, but if he keeps this one, I think it'll always be in the top 10% in the entire country. Jealous.

    ;-)
     
  12. Tropo

    Tropo Well-Known Member

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    Carl,
    Have you ever been to Bedarra Island ?
    :cool:
     
  13. TryHard

    TryHard Well-Known Member

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    Hi Tropo

    I wish ! Business is ok, but not THAT ok ;-) Bedarra, Orpheus and Lizard are usually billed as the ultimate island destinations for Qld.

    We've been to Orpheus, stayed 3 nights and I put on 10kg. Now THAT was a holiday. Bedarra and Lizard have great reputations. Orpheus has also been major refurb'ed since we were there (and since become a client of our business, so I won't dwell on their competitive advantages ;-) )

    But check out the price tags of all 3 of 'em - its great to spoil yourself, but I can't free up that many readies all that often ;-)

    Cheers
    Carl
     
  14. Tropo

    Tropo Well-Known Member

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    Hi Carl,

    Gosh ......10 kg in 3 nights it's very scary.....They fed you well then... :D
    I found that the main attraction of those holiday resorts is food. I am not attracted to food as much as to good alcohol, so all I can get is a giant hangover instead ....
    Bedarra is my target (Orpheus and Lizard also) for quite some time. I heard a lot of stories about this Island. But as you said price is very steep.
    I still wonder if paying approx. $16 000 per two for 8 nights is really worth it...if you realize that one month holiday in Europe will cost you almost the same amount of money.
    Some time ago we've been sailing (6 days) with our friends at Whitsunday's. Some of those islands are really amazing.
    Oh ... well .... sooner or later we'll spoil ourselves at Bedarra, if one day Santa delivers big bucket of money... ;) :D
     
  15. TryHard

    TryHard Well-Known Member

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    The food was insane. 5-6 meals per day, it was very "Mr Creosote". ;-) The island prices have always been a bit hard to compare to overseas holidays ... and when you look at some of the amazing places in Fiji, I've always meant to go try them one day too ;-)
    Bula
    Carl
     
  16. D&K

    D&K Well-Known Member

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    Hi All,

    Well I am absolutely amazed by the dedication and willingness of forum members to go and research these destinations. :D

    Maybe after a few more houses or a lotto win I'll join you, in the meantime I hope you all enjoy the research :rolleyes:

    Dave
     
  17. Tropo

    Tropo Well-Known Member

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    Dave,
    I am not sure if this has anything to do with the dedication or willingness. To me it's just a fun... :D
    Investing should not run your life. If you make it one day, make sure that you have got enough time to spend it.
    After all - YOU only live once ... unless you are 007. :p
     
  18. TryHard

    TryHard Well-Known Member

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    Sales spiel

    Hi again D&K

    I was up North the other week and some contacts mentioned a resort development in Palm Cove (that I don't think ever got started) marketed as 7% guaranteed yield for 3 years. In the fine print is said "Based on 85% occupancy in high season and 75% occupancy in low season")

    As these contacts pointed out (and raised with the developer salespeople who looked suitably dumbfounded), the average occupancy in Palm Cove in low season is more like 20-28 % !! So that's a classic example of the tactics used to sell tourism property. Its highly unlikely a new property would have any better occupancy than the average, so I dunno how some of these developers sleep at night (on their mattresses stuffed with cash ;-) )

    Just thought I'd provide a recent example ... :)
    Cheers
    Carl
     
  19. D&K

    D&K Well-Known Member

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    Hi Carl,

    Hmmm...
    Very interesting. The sales tactic probably works really well on holiday makers, enjoying the beach and not reading into the contract details. Or maybe too many people did read the details and that's why the development didn't go ahead? :rolleyes:

    I thought that the guaranteed returns would be "built in" to the purchase price since they're not cheap, but obviously there's no guaranteed return here.

    Cheers, Dave