In particular we focus on getting the loan structure right the first time, choosing which lenders to use in the right order (yes this is important) and finally getting our clients the best deal possible.
Serviced apartments are strata titled apartments generally owned by investors and managed by an entity that holds the management rights to the complex the apartments are located in. Mostly rental income from the apartments is pooled by the management company and all costs are also covered by the pool. Many operators allow the property to be removed from the letting pool which is often a pre requisite for finance on good terms.
Serviced apartments fall outside of the mortgage insurer’s scope of acceptable properties. For that reason the maximum LVR available would normally be around 70% but up to 80% with one of our lenders.
The management agreement that the investors sign up for when they purchase a serviced apartment will determine what the maximum available LVR is and if normal residential investment loans are available at all. Loans for some complexes may have to be written as commercial loans.
To be what we call a compliant serviced apartment and therefore eligible for a 70% or 80% LVR, the agreement / lease should allow the following:
- Permanent occupancy of the property is permitted, ie there are no restrictions on permanent occupancy of the property under the management agreement or under local zoning restrictions.
- Must be zoned residential. Where the zoning is commercial use only, then the property would be unacceptable for a residential rate investment loan.
- The valuation undertaken by the lender will be “as if” the unit is not a serviced apartment, and must be acceptable on that basis.
- The valuation will exclude the value of furniture, fittings and equipment.
- The property is not a hotel/motel type of apartment.
- The property can be removed from the letting pool within a reasonable timeframe from the giving of such release notice. Where this involves the payment of a fee or penalty in any form, the fee/penalty is to be deducted from the valuation.
- Must be able to be sold freely without consent from the managing agents.
If the serviced apartment does not meet all / most of the conditions above but is zoned for residential use we may still be able to get you a 50% to 60% LVR at normal residential investment loan rates. Failing that the loan would have to done as a commercial loan which means you would expect to pay interest rates of around 2% pa more and much higher establishment fees
Serviced apartments less than 40m2
Further complexity is added to the finance puzzle for serviced apartments if the unit is less than 40m2. Really there is at the time of writing only 1 or 2 lenders who would consider this on normal terms.