Key points to consider when placing an apartment under hotel lease
Summary:
This is not a definitive answer as it would be personal preference in this situation.
When putting an apartment under hotel lease you don’t have any responsibility and it becomes a hands-off investment. You don’t need to worry about vacancies, damage and so on. In terms of income the stress to make every dollar possible out of the property is lessened too.
If you are considering it, you need to ensure that you have negotiation rights, in terms of years of being locked in and income.
You need to be aware of maintenance that may be required and adding those terms and conditions into the lease agreement too.
TRANSCRIPTION:
Good day, my name's Andrew Murray from the Apartment Specialists. Today I'm talking about Auckland apartment sales, specifically Auckland apartments and hotel leases. But on the side of - you're not in a hotel lease and should you put your apartment in a hotel lease. Now, it's quite a big question.
Now for me personally, my answer would be definitely, no. But that's because my situation is different, and your situation could be completely different from mine. If your aim is to have a hands-off investment where you don't have to worry about vacancies. You don't have to worry about damage. You don't have to worry about squeezing every single dollar out of that apartment in regards to income. Well, a hotel lease is something you definitely want to look at. But there are quite a few areas that you want to make sure. For one, I think the biggest reason that I would consider it, would be if I can negotiate with the lessor.
So I can negotiate with the owner, and this is obviously often the franchiser. And the reason why I say that is because you can negotiate returns, i.e. you can put it in for only a year or maybe two years or maybe three years, not being locked in for five or ten years, because if you're locked in, if you do sell or you have to... Let's face it. Life changes and maybe you do have to sell for some particular reason. If you have to sell it while it's in the lease, you're going to get a lot less than you would if it was out. You can't sell it to owner occupiers, you can't get the highest rent possible, that kind of thing. So that's one key.
Another one is, that you can negotiate your income. You want to be able to get your income as close as possible to what the market rent is. Now you're not going to be able to get market rent, but you're going to be able to get close. If you can get very close to market rent, you're actually doing really well. On second thought, maybe I would put my apartment in it, so then it comes down to negotiating. At the moment we don't have enough apartments in the CBD, so hotels are looking for stock. They're losing their customers, so they will negotiate with you, but you have to be able to. Now the larger corporations often can't.
The next part is damage. Obviously you don't have to pay for any damage to the unit. Only general wear and tear, and that is by far the most important. For example, if they say to you, Look, to keep the standard above hotel or the people you're leasing it out to you need to replace the carpet. If there's burn marks in there from previous people they've put in there, you shouldn't have to pay for that, but if it's wear and tear because that carpet has actually been pretty thin, it's been more than ten years and starting to look pretty horrible, well you should really be replacing it. You want to be very aware of what you're getting into. In short my answer is, yes, if you can negotiate with the lessor and get the terms you're looking for, and it could be a great solution to your investment or to what you're trying to achieve.
Next time I'm going to talk about looking at two different companies in the CBD. Both have a lot of apartments and leases. All of these owners are locked in, but I'm going to talk about more specifically on one that I would look at putting a lease into, and one that I definitely wouldn't, to give you an idea. I hope that helps.
Cheers!