Hotel Management vs Property Management.

Question from Garth updated on 16th September 2011:

I am looking to invest in apartments in the Auckland city centre as a source of income. As I am out of the country for six months a year I am attracted to a managed hotel apartment such as the Heritage. I was wondering what are the likely returns on this kind of property compared to a permanent rental in which I would employ the services of property manager. I also have noted the leasehold student accomodation such the Unilodge seem to be very profitable for a minimum outlay. I would appreciate it if you could outline the pros and cons of each?

Our expert Ben Turner responded:

At this point in the market (Winter 2011) you will most likey get a higher cash flow from an apartment that is not in a hotel pool. The higher cash flow apartments are the small the shoe-box's because most of the lenders are only lending 50% LVR on these, so this takes a lot of the higher geared investors / buyers out of the game. Shoe Box Apartment = 14m2 to 40m2. NET Yield/Return Between 7-10%.

Hotel Management vs Property Management. 

From what I have seen from Auckland Hotel Managements over the last few years, Hotel Management is generally not the way to go. The gross returns are high, but the net returns for the investor are poor to say the least. Generally about 2-5% net is normal as Hotel Management appear to charge what they like, when they like, for anything they like, and the investor has no say what so ever.

Don't ever self manage unless you have had training and experience in property management because one bad tenant can cost you a lot of money. As for property managers - there are good and bad and as the investor you'll have to make your own informed decision.

A good Property Manager is like any other company you hire, If they are not performing you can change them.

Garth, there are really only two reasons why any Auckland City apartment should ever be vacant:

1. A poor property manager that does not answer their phone, and worse does not return phone-calls to potential tenants within a few minutes, or they are unavailable to show your property to working tenants (normally out of working hours)

2. If the property is overpriced, poorly presented or both; a good property manager should have your apartment tenanted 52 weeks of the year. If it is not then these are the things you should looking at. 

Auckland Apartments Advice Bureau provides independent advice on apartment investing in New Zealand. Call today for free advice before you sign the dotted line.

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