Any advice about investing in Bolton hotel wellington?

[corran]

Hi,

I'm based overseas and am interested in a real estate investment that requires minimal hands on involvement. At first glance this seems like a good investment to me but I have no previous real estate investment experience. I'm trying to figure out what the risks and downsides are. Any advice is very much appreciated!

The proposition is to buy a 1 bedroom room in the Bolton Hotel (asking price $260,000 + GST). The hotel will then lease it back at 7% and pay all costs. The contract lease terms run for 10.5 years after which there is 2 X 10 year rights of renewal for the tennant (the hotel).

In terms of an income proposition it seems good to me. I question what the resale value will be and how easy it will be to sell on.

Here's a link which gives an overview:
http://www.stuff.co.nz/dominion-post...-on-the-market


I've copied the details from the real estate agent below:
_______________________________________________
Price: $260,000 plus GST for one bedroom
$160,000 plus GST for studio

The management company pays the Body Corporate fees, insurance, rates and maintenance.

Returns are NET. Fixed for the period of the lease. Paid monthly in arrears

Returns for one bedroom: @7% $18,200 net per annum + GST

Returns for studio: @7% $11,000 net per annum + GS
Commercial lease terms
Initial term 12 years, from 1 February 2013
2 x right of renewal, 10 years each
Rent 7% net return, all costs paid by tenant
Rent CPI adjusted two yearly
Market review on right of renewal (ratchet clause)
Freehold Strata Title
Proven tenant
New building completed 2005
Owners have special rates to stay.
Wellington CBD location
Earthquake rating 100%
Owners need to be GST registered.

[nextbigthing]

I know little of these sorts of investments at this stage however the obvious question to me seems to be, what happens when the lease expires and they don't renew it. Does the 260/160k become almost worthless?

Also, 7% net. That's OK but with rising interest rates it might not be amazing.

[corran]

hi nextbig thing,

Thanks for the reply. Yeah, the resale value is a real question mark for me. I'm trying to get some more insight on that now.

I'm leaning towards not investing in this. Reason being is that the margin between what I can borrow the money and the 7% is not that much and the high (I think) risk of losing capital when selling it.