I sold Ho Bee recently and earned some profits as news and layout of Metropolis was publicized and featured by the local media. Previously, I bought more Ho Bee post ABSD announcement (Additional Buyer Stamp Duty), so the price locked in was relatively "under-valued" against revised NAV (net asset value)
Back to properties - today, I will like to touch base upon the idea of "buy and lease out a hotel room". Ignore the details below if you prefer hospitality REIT.
Please do your due diligence - this article is for reference only
OVERSEAS HOTEL ROOM INVESTMENT (INCLUDES SERVIED APARTMENTS)
Picture the concept - invest in a fully-furnished hotel room overseas, so that you actually own it and you turn over to a Professional Operator (i.e. Property Manager/Developer) for a medium to long term to manage it. In return, they pay you a monthly rental incomeHere are the benefits given to you, as an investor:
1. The property/hotel operator offers guranteed returns, as much as 6% annualized yield for the first 4 to 6 years
2. You might be thinking of your next travel gateaway because there is free stay given for x limited of days/weeks
3. To make it attractive, some firms will offer free 2 years maintenance
4. The property/hotel operator will indicate that the chance of zero occupancy for that hotel is rare, so there will be medium to high chance for your room to be leased out
5. You are the proud owner of a well known hotel room/serviced apartment
Such hotels and serviced apartments for investments are common in Australia, New Zealand, Malaysia, Thailand, Philippines, Britian and America.
Let's look at the considerations:
1. The hotel should sit on a prime site that is near to transport, food & attractions as demand is stronger. Therefore, your room leased out can command a higher rental fee and thus provide you with healthy monthly cash flow
2. After first few years of "guaranteed yield", you might need to re-negotiate with the Hotel/Property Operator for a new "sales & lease agreement". Hence, you need to anticipate, after the lock in yield period, will the property climate of the local market weak or growing which is one of the few reasons where the Operator may discuss terms favorable to them.
3. Expenses such as stamp duty, legal and title registration fees, applies. It is no different from residential or commercial unit. You will also need to pay monthly upkeep (i.e. hotel expenses) - it is deductible from the total revene.
4. Till date, a check with local banks in Singapore does not offer loans on hotel room investment. Usually, you need to find the banks where the property is based. For example, if the hotel is located in Australia, Westpac could offer financing to Singapore investors.
5. Property investment outside Singapore cannot be funded by CPF savings.
6. Check if the Professional Operator is an established player and has good track records/well experienced in such transactions
7. Read the fine print of the agreement and find out in details the expense breakdown. For example, housekeeping are charged to investors at a huge percentage, despite the Operator getting a large cut of the profits
8. Rental return rate is dependable on occupancy rates, so it fluctuates from month to month, unless there is a guranteed fixed return (i.e. most operators will provide such incentives to you). Good thing is, rarely there is zero occupancy for hotels or serviced apartments
9. Investors should note that the market for the sale of hotel rooms is less developed and therefore they may find it LONGER to sell off their investment. When this happens, you will incur monthly upkeep expenses and opportunity costs. What you get is probably monthly rental income only. Do your calculation and assess if your initial outlay + maintenance will be more than your returns for a specified time period
Personally, I find the guranteed yield attractive for a certain period of time. However, I have to study the risks involved. Overall, the nature of the investment and returns should match my profile and objective. For instance, if I am looking to sell my properties 10 years from the date of purchase, I am not sure if my hotel room can be sold to another potential buyer since some local markets are less developed. Plus, the longer I wait, the more monthly expenses incurred (i.e. rooms are well maintained). Not to mention my cashflow is tied down and not possible to release for other attractive opportunities (unless I am wealthy :)).
Nonetheless, it's good to know that such property investments are available.