Ins and outs of lease apartment
Question from Dylan updated on 15th December 2012:
I am looking into purchasing an apartment with a lease to Quest apartments. What are the pros and cons of purchasing such an apartment versus a normal residential apartment?
Our expert Ollie Mitch responded:
There is a lot of variation between lease agreements even within the same hotel franchise. Some favour the hotel (lessee) much more than others, the devil is always in the details. For the purpose of answering your question I’ll assume you are looking at one of the more favourable (for the apartment owner) lease agreements.
The lease will offer you a defined income that is fixed for say five years during which period the apartment must be leased to the hotel. The hotel pays the body corporate fees and rates. The income from the hotel will almost always be lower than what can be achieved by market rent and there is often little or no annual rental increases. The net income (even after paying body corporate fees, management fees and council rates) will be much higher for a residential let.
Basically the pros are defined Income, no management fees and no concerns about vacancy. The cons are lower net income, no increase in rent and it cannot be owner occupied.