Want to know why Strata Title Hotel Investments can be a "Hell Hole" for the unwary?
Hello, Colm here ...
A RESIDENTIAL INVESTMENT MANTRA FOR YOU!
WHEN ALL ELSE FAILS,
IF YOU CAN'T "LIVE" IN IT PERMANENTLY,
DON'T BUY IT!
What do I mean by that?
Flexibility should be your investment by-word. One of those important 'bench marks' that you should achieve.
Strata Title Hotels are built because:
* Major Institutions don't want to own Big Hotels.
* Not to allow you to enjoy being part of the growth in the hospitality industry.
So What Are The Facts:
Why are Hotels built and sold by Strata Title?
Why do Developer Build Strata Title Hotels?
Developers will say, "strata title allows the average investor have a part of the inner city tourism/business market."
What's the real reason for Building Strata Title Hotels?
Major Institutional investors in Australia do not want to own hotels any more. They got into them in the 70's, 80's and generally, did not enjoy the experience.
The ROI was not 'there.'
Institutions are essentially passive investors and like Flexibility in their investments. Financial institutions do not run Hotels. So they must engage Managers, like Sheraton, Hilton etc to manage the hotel for them.
Institutions want to engage the Manager on a Lease Aggreement; however Managers prefer a Management Agreement Arrangement.
Management Agreements are the NORM for the industry, and the Managers are expert at maximizing their performance bonus and the amount left over (the investment return) for the institution has generally not been good enough for institutions to continue to want to expand their hotel investment portfolios, even in CBD locations.
So if that is the attitude of the 'Big Boys' and a developer believes there is a market now for a new hotel, their only other option is to go the strata title route and go for the 'Little Guys.'
Can I put it another way, with no insult intended.
The investment performance of hotels is not good enough for the Professional Institutional Investors who have 'money power' and 'high skill' behind them; so let's go for the non-professional investors through strata title.
Remember the Big Boys employ the Big Managers. The Big Managers don't get involved in Strata Title Hotels. That's left to the lower ranked managers & the lower ranked developers.
I don't think that is good enough, do you?
1. If the complex is run as a HOTEL, you can't live in permanently, 'cause it's too small.
2. If its internal space IS UNDER 50sqm a buyer will not get bank finance.
3. And finally if it has a RENT GUARANTEE you've now got three good reasons to do a '180 degree' turn and RUN.(See separate report)
If investors decides they still want to buy a strata title hotel unit, the most important document to read is the Management Agreement and if there are any Guarantees; who is underwriting the Guarantee; HOW STRONG ARE THEY?
Strata title hotels have a poor history unfortunately, because of the reputation and lack of experience of the developers who put the deals together AND PROMOTE THEM.
Only a few months ago I helped a family who had been in one of these strata title hotel investment for five (5) years. They sold for less than they paid. Enough said.
Let's get away from hotels:
Let's suppose your financial world has fallen apart, and you have to cut things down to the bone.
If your investment unit/house has been designed for the investment market, it is generally smaller than what society regards as a normal size.
You and I know what a NORMAL house and unit looks like and feels like; don't we?
When you see Rent Guaranteed Investment Real Estate, have you noticed that they just don't look like we expect normal houses and units to look.
Usually they are much smaller and are built in a complex.
So the first rule is never buy any property that is under 50 square metres internal area. Do not include balconies in this calculation.
IF THE AREA IS UNDER 50 SQM INTERNAL AREA, BANKS WON'T ACCEPT THE UNIT AS SECURITY.
Oh, you say, 'but my friend was able to buy one and the bank lent them the money.' Yes, you are correct BUT it is usually a finance deal done by the developer with the bank and the bank will usually have security over other assets.
When you come to sell, a bank won't lend BUYERS money for a property under 50 sqm internal area, and that leaves you looking for a 'CASH BUYER ONLY.' Your Flexibility is wounded, but you can't see the blood yet.
The unit/house is physically not considered standard, as compared to what is normally on the market. They can vary from small houses/townhouses in outlying areas or inner city units in complexes being run as a hotel/motel.
The Real Estate Development Coach
Author of "Residential Development Made Easy"
Copyright Colm Dillon, October 2003
All Rights Reserved.
Colm Dillon author of "Residential Development Made Easy" the only 'How To' Become a Developer eBook, selling in 38 Countries, has developed $1.2 Billion worth of real estate - read more on his web site http://realestatedevelopmentcoach.com/realestatedevelopment.html