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Hello,

 

I've found an apartment online that I'm interested in buying. It's cash only because it's a serviced apartment and as a result it would be sub-let the property and I wouldn't be able to get a mortgage (I'm renting out to a service company and they fill it).

 

The yield is excellent for the area and the service charge is low.

 

There are two downsides;

 

1 - The current agreement with the service company runs out in March so by the time I get it, the agreement will have run out. I'm trying to find out if they will renew and what th terms will be, but if if I get a verbal agreement, I would want something legally binding and I'm not sure I could get this.

 

2 - Buying in cash means considerably more equity would be tied up that I'd wish for.

 

The plus side is huge though;

 

- Great yield

- Guaranteed rent above the market price

- low service charges

 

 

Has anyone else had a similar experience?

 

Many thanks,

 

Michael

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  • 2 weeks later...

It might have a great yield but compared to what? Comparing investments and property is easier if you use return on capital and this will be very low as you are not using finance on the property.It's 100% your money and not 75% the bank's.

 

Also as leasehold property can it be used as this under the terms of the lease? If it were on a single AST would it still be attractive to you, as serviced accommodation is fashionable at the moment.

Regards Simon

Searchlight Finance Ltd

T:01565 654005

 

Landlord and specialist property finance advisor only dealing with investors, landlords and developers throughout the UK and beyond.

Buy to Let - Commercial Finance - Bridging Loans - Development Finance - HMO Finance - Refurbishment Loans - Multi Let - Limited Company - Student Lets - Portfolio Finance

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Hi Simon,

 

The yield would be roughly 7.2%, which as you say, in terms of roi is relatively low but this is completely hands off and hassle free for five years (supposedly), which is the period of the contract. After that time the apartment could be sold on the open market or mortgaged to release equity. The location is superb and the flat is perfectly good as an AST proposition and I would think the yield would remain fairly high.

 

I've spoken to the company who are subletting the flats and they intend to increase the rent they pay to landlords annually and there would be the possibility that after five years I could extend the contract if it suited all parties.

 

Leverage is simply a question of risk. We could be on the brink of global recession and if that does happen I'll be very happy getting 7.2% ROI and in five years if the economy has improved then I have more options. Fortunately this is only one of at least two properties in my PF so I would consider it a hedge against unpredictable market conditions.

 

My question is, has anyone owned a serviced apartment and what pitfalls there might be?

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  • 1 year later...

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