Property investors are always on the look-out for properties that will give their portfolio balance. While residential properties still reign as the most popular property investment market, other alternatives, such as serviced apartments, can offer perks to help investors achieve stability in their property portfolio.
One major benefit of serviced apartments is cashflow. Serviced apartments, when purchased, are leased to a serviced apartment company or franchisee on a long-term basis, usually for a period of up to 25 years. This long lease is for the benefit of both the investor and operator, which lets the apartment like a hotel to business and leisure travellers, and makes their own income from the room rates. The investor has peace of mind knowing they have a good quality, long-term tenant, and the serviced apartment operator has long-term access to a great piece of real estate to market and let.
Additionally, the long lease has incremental rental increases scheduled in. This ensures owners continue to reap the benefits of their investment, on a regular basis. Not only does this mean a little extra cash in the pocket every few years, it also makes it possible for investors to forecast their income more accurately from that property and allow for better budgeting.
In addition, the long-term lease is to one single tenant – the serviced apartment operator. Investors don’t have to worry about turnover of occupants, or advertising costs, or loss of income due to vacancy. The serviced apartment operator is the tenant, meaning investors are paid their rental income, regardless of whether the apartment is occupied or not.
It also means investors only have to deal with one point of contact in matters relating to the apartment. Better yet, the tenant addresses all the immediate needs of the apartment, managing occupancy, cleaning, even minor maintenance issues. Serviced apartment owners don’t need to be involved with the day-to-day upkeep of most investment properties, making this option a more ‘hands-free’ investment that delivers regular, agreed on, rental income.
Residential real estate management fees range from 5-7% of the rental income (often with other costs such as postage and phone calls on top), whereas serviced apartments offer investors their full rental income, paid directly to the investor free of any management fees.
The benefits of serviced apartments don’t stop there. In addition to better cashflow and less involvement, serviced apartments also offer high quality properties in locations that have been thoroughly vetted by professional property researchers. A comprehensive assessment of each serviced apartment site includes reviewing the local economy, nearby business and infrastructure development, and surrounding demographics to ensure the site’s suitability. This effectively completes the due diligence for investors, meaning all they have to do is choose a suitable apartment from the range. With apartments in a variety of locations and at price points to suit all budgets, there’s sure to be a property that’s perfect for your portfolio.