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Part time Holiday / Investment

Discussion in 'Real Estate' started by NickM, 1st Oct, 2005.

  1. NickM

    NickM Co-founder Staff Member

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    20th Jun, 2005
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    Location:
    Sydney
    Does anybody own an apartment or house that is partly used for holiday rentals and also on occassion used privately ?

    What are the pitfalls ?

    Additional Insurances ? Extra maintenance / hidden body corp fees ?

    Misrepresentation of rentals ?

    Is it only as good as the manager ?

    NickM
     
  2. Mrs Bird

    Mrs Bird New Member

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    17th Sep, 2005
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    Hi Everybody...first post on this forum :D

    We own 3 holiday rentals...

    Owning Holiday apartments is like taking a roller coaster ride each month. You never know what sort of return you will get.

    IP 1...1 Bed, Beach front Palm Cove...we have experienced excellent capital growth over the last few years. Bought 2001 for 138k value now 350k plus.
    Return... good, pos cash flow after tax return. Body Corp fees wipes out all profit we would make!

    IP 2...1bed Trinity Beach, bought 118k 2004, value now 141k. Return almost nothing...an absolutely disaster!

    IP 3...3 bed Trinity Beach, bought 180k April 2005, value now 240K( Refurb)
    Return...Averaging $1800 (after expenses) a month...excellent so far.

    IP 1 and IP 3 have been good investments. IP 1 Prime beach position, IP 3 main road. Both have experienced good Capital growth, although IP 3 we were able to add value by doing a small refurb. IP1 and 2 are in a pool. IP3, stand alone as we are the only owners of a 3 bed in the complex. This gives us a great advantage as we have the only apt that can cater for families on a budget.

    Disadvantages of owning Hol Apt...( Personal experience)

    Horrendous Body corp fees, kills off any profit you could make!
    Incompetent or worse, dishonest property managers...very hard to prove.
    Refurbs must be done at 5, 7 10 years...can be very expensive
    Apts not affiliated with airlines etc could miss out on lucrative deals, once more comes back to a competent manager.
    Owner occupiers or worse renters taking over some of the apts in the complex very unattractive to tourists who pay good money to stay in a resort( bikes on balaconies, loud parties in apts etc)This has an affect on everybodies investment.
    Tourists have disappeared...low season
    Apts/resorts that are not positioned well may have less CG and return( beach front always the best or at least postioned prominently on a main road)
    Misrepresentation of rentals...Definately...IP3 we made sure that we looked at their profit/loss statements for the last financial year. This one had to make money.
    Many other difficulities that I'm sure others can add to the list

    Advantages

    We have a beach front apt at Palm Cove! Our dream has come real. :)
    Life style decision. Owners are able to enjoy holidaying in their own apt.
    Can have amazing returns if property is selected carefully...very hard to find. IP 3 once is completely refurb will be rented up to 185 a night.
    Apt will be nicely maintained...you do not have to worry about contacting tradesman, although we still get quotes, just to make sure we are not being ripped off.

    Too many unknowns...some times it feels like a leap of faith with your managers...you need to trust they are doing the right thing for your investment.

    Mrs Bird
     
  3. kennethkohsg

    kennethkohsg Well-Known Member

    Joined:
    18th Aug, 2005
    Posts:
    50
    **********************************
    Dear Mrs Bird,

    1. Congratulations on your recent property purchases and for realising your own dreams.

    2. Can you please further elaborate what exactly do you mean when you say, "Body Corp fees wipes out all profit we would make!" ... with 157% accumulative worth of capital growth achieved in 2005?

    2. How much do you reckon the value of your unit will be worth in 3-5 years time now that the property market in Cairns has peaked in 2005? How much price correction do you foresee for your unit apartment when the Cairns property market undergoes its Declining Phase in the near future?

    3. Looking forward to hearing and learning from you, please.

    4. Thank you.

    regards,
    Kenneth KOH
     
    Last edited by a moderator: 22nd Oct, 2005
  4. kennethkohsg

    kennethkohsg Well-Known Member

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    *************************************
    Dear Mrs Bird,

    1. Bottomline and on hindsight, will you still invest in these holiday unit apartments again in future? Why?

    2. Looking forward to hearing and learning from you soon, please.

    3. Thank you.

    regards,
    Kenneth KOH
     
  5. Jacque

    Jacque Team InvestEd

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    Location:
    Sydney
    Mrs Bird
    What a great post! Thanks for contributing such a wealth of knowledge- looking forward to reading more of your posts. Welcome aboard :)
     
  6. NickM

    NickM Co-founder Staff Member

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    Location:
    Sydney
    Mrs Bird, thankyou for enligtening us with your own experience !

    I must admit I looked closely at an apartment on the Gold Coast.
    the numbers looked OK but as i started to do more research - they didnt

    Approx $30K net return on a unit with great ocean views never to be built out. (19th floor)

    Price $465 + $50K worth of renos needed.

    I indicated to the agent that it wasnt worth anything more than $400K.
    It sold for $430K a few days later.

    Capital growth was negligible as the previous owner purchased it for $315K 8 yrs ago and hadnt touched it.

    I had several discussions with the on site managers and Mrs Bird is spot on - you are only as good as the managers running the place

    nickM
     
  7. coastal

    coastal Member

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    18th Aug, 2005
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    We have a holiday property as an investment on the Central Coast- 3bed townhouse in a small group of 3, close to the beach. It has been our best performing investment, not only for the capital growth (value now 3x the purchase price in 5 years) but also the rental return- the only catch to making this work is that I do most of the bookings online and actively manage the property, while the local agent manages a booking now and again. The only down side is that it does have a high wear & tear factor.- but keeps me busy!
     
  8. JoannaK

    JoannaK Member

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    Location:
    Sydney
    Hi coastal,

    do you find any particular website better for generating your online enquiry or have you set up your own website and registered it with the search engines?
     
  9. coastal

    coastal Member

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    18th Aug, 2005
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    We placed the property online with ozstays a few years ago when they were starting out and it has gone from strength to strength- easy to navigate around and continually improving. The site has thousands of properties listed by owners and works on an honesty system- so no charge for listing the property and only a small charge for successful bookings- which is 1/3 of what the local real estate agents charge!
     
  10. Mrs Bird

    Mrs Bird New Member

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    17th Sep, 2005
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    Hi Kenneth,

    I realise that my post was not very clear but what I was trying to say that despite a fairly good return each year, the high BC fees turns what should be a very healthy pos cf investment into a negative. CG has been excellent so of course it has been a wonderful investment in that aspect.
    It is all the extra fees that take alot of the profit away. For example, last month the actual unit made over 3k, we received $1500. Expenses had to come out. That is why a few owners are now managing their units themeselves but this also can lead to further problems with managers who are not happy about the arrangement.

    In regards to question 2...We bought cheaply, at the bottom end of the palm cove market therefore I foresee only an increase in the price for our unit.
    Why I say this is because our block is still the cheapest to buy on the beach.
    Other 1 beds are 400k with beach views. I definately see a price correction for all the other apartments that are so over priced with little or no return at all during the off season. 2 bed units are being sold for 850k with the same beach views as our unit. The Cairns market stagnated for over 10 years but beach front property I believe will always be in demand, particularly with the baby boomers looking for holiday apartments.

    How much do I think our Cairns apts will be worth in 5 years time?
    Palm Cove...450k
    Trinity Beach 1 bed...170k
    Trinity Beach 3 bed...280k

    Prices conservative...very hard to tell. They are all in prime positions with competent managers running the show. The best thing about these investments is the fact we bought at the lower end of the market.

    I hope I have answered some of your questions... :)

    Kind Regards Mrs Bird
     
  11. Medine

    Medine Active Member

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    22nd Aug, 2005
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    Hi NickM,

    I know of several people who have successfully "invested" in lifestyle properties that are partly holiday rentals.

    One couple bought an old house in a coastal town 1&1/2 hours out of Melbourne for $400,000. They spent $100,000 to get it to look very appealing. It is now available for holiday rental through the local agents. It usually rents for six weeks of the year (four weeks in Jan and two weeks at Easter) and maybe a couple of weekends if they're lucky. This pays the rates, maintenance and a little towards the mortgage. The rest of the year they use it themselves.

    The great thing is that they've had about $200,000 capital gain, through the reno and some market movement.

    It's not the kind of deal that will make them rich overnight, but it does offer them lifestyle at minimum cost. Maybe that's another option?

    Cheers, Medine
     
  12. Medine

    Medine Active Member

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    Hi Mrs Bird,

    Great first post! Well done!

    Cheers, Medine
     
  13. kennethkohsg

    kennethkohsg Well-Known Member

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    Dear Mrs Bird,

    1. Thank you very much for sharing and enlightening all of us with experiences and answering all my questions.

    2. I much appreciate your reply and clarifications for my own self-education purposes.

    3.Thank you.

    Cheers,
    Kenneth KOH
     
  14. Mrs Bird

    Mrs Bird New Member

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    17th Sep, 2005
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    Question 1...Definately Yes! However, it would have to be a great deal like the 3 bedder we bought just a few months ago. I like the cheaper less flasher apartments near the beach because financially for us, it is easier to handle in bad times and believe me there are terrible months when you receive a cheque for only $150 and you have a BC bill to pay as well as a mortage. I also would buy again because I believe that the capital growth for these properties, if selected carefully, would be significant.. I would also only buy if the apt had the magical 'scarcity' factor eg beach front. Lastly, if the apt was under 200k with a very healthy return.

    I must admit, it is the BC bills that are sending me batty, everything else, repayments, rates can all be covered very comftably, with some left over.

    Something interesting...A brand new resort has just been built at palm cove right on the esplanade. Apts are priced between 400k for 1 bedders and 850k upwards for 2-3 bedders. Beautiful reort, all apts I would say bought by southern investors promised (projected) returns of 7-8%.
    We walked past and saw a sign out the front advertising rooms for $50 a night. I was shocked and dismayed how such a beautiful reort could lower their price so much. There is no way the investors are getting any return at all with those prices. What I couldnt understand is how our little block of holiday apts down the beach had an 80% occupancy at $180 a night and this other resort was almost empty. Not surprisingly there were at least 20 apt from this resort on the net for sale.

    Mrs Bird :)
     
  15. TryHard

    TryHard Well-Known Member

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    17th Aug, 2005
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    Holiday Lets

    Hi all

    From another angle, my concern would be the land content, and the quality of the management, and the characteristics of the market the IP appeals to. I don't think many holiday style properties would pass Rental Reality and the location and history might also be a worry. I think Mrs Bird's style of property sounds far more attractive than a "made to investor order" proposition. I know someone who bought a penthouse in the development mentioned at Palm Cove, and the only reason its suits them is they're loaded and couldn't care less about the dubious returns :)

    I work in the online tourism industry which involves promoting sites something like the OzStays one mentioned earlier in this thread.

    IMO the Cairns market is completely reliant on international tourism (I work in Cairns a lot). Domestic visitors feature too, but usually only when the cheaper tropical holiday destinations are unappealing for some reason (weather, terrorism etc). The introduction of cheap domestic fares courtesy of Virgin Blue coming into the market has helped, but the real cheap fares are starting to creep up in price thanks to Govt taxes, Ansett levy etc.

    Any resort that builds to suit the Southern Investor market and has upwards of 100 rooms *must* have to rely on bulk bookings from what is known as the inbound and wholesale travel trade. These channels take around 30% of the gross rate before the property even sees dollar one. They sell the rooms overseas and domestically to the public, via travel agents.

    The inbound and wholesale channels are not particularly loyal (they will sell whichever property they can screw down to the cheapest deal and the most commission) therefore you run the risk of your investment being flavour of the month one year, and left out in the cold the next.

    This leaves the "last minute" channels who take care of all the 'left over' rooms that the wholesale and inbound operators could not sell, and also take commission and encourage 'cut price' deals. Hence most types of operators need to offer cut price deals to compete, for the small amount of remaining 'off the street' business. However they do not have freedom to operate as the contracts with the wholesalers prohibit them from advertising a cheaper rate than the wholesaler's provide via the travel trade. The holiday consumer is being educated to either stay loyal to a travel retail chain, or wait and bargain for cut price rooms, not a very good sign for increasing yields over time.

    If I was to go the 'heart over head' decision and buy a holiday investment property (which I no doubt will one day!) the history of the management, the land value, the level and some guarantee over BC and marketing fees, a strategy for working with the travel trade (if its a larger property) and a proven track record of historical returns would be on my shopping list.

    Cheers
    Carl