Auckland serviced apartment at NZ$1.889m and 4.3% gross — does it stack up?

[ReadyMeter]

If the income estimate proves optimistic, there is not much yield available to absorb the error. The Auckland 3-bed serviced apartment costs NZ$1,889,000 and is projected to produce NZ$6,716 a month, or around 4.3% gross.

I have allowed for empty periods, management, ordinary upkeep and one sizeable repair, but the operator arrangement may be the larger risk. I need to establish whether the monthly amount is fixed or occupancy-dependent, and who pays body corporate levies, rates, insurance, cleaning and unit turnover costs. I also plan to test the cash flow at higher borrowing costs rather than judging it only before finance. Which assumption would you challenge first?

 

[PrimeHarbor]

NZ$6,716 over 12 months is NZ$80,592, so there is not much room between the 4.3% gross figure and a disappointing net result. I’d focus on body corporate levies, council rates and insurance, while checking that insurance is not being counted twice through the building and your own cover. Is the NZ$6,716 fixed under an operator arrangement, or merely an occupancy-based projection?

 

[PrimeHarbor]

Also stress-test the financing separately. A deal can look acceptable before debt but become cash-flow negative with a higher borrowing cost or refinancing change. Include turnover-related cleaning and reletting costs rather than hiding all of that inside a general vacancy percentage.

 

[clear_wall]

I’m less convinced vacancy is the main risk here. With a serviced apartment, the operating arrangement and recurring building costs may matter more than a few empty weeks. Ask for the current levy breakdown, recent maintenance history and details of any proposed major works, then separate costs paid by the operator from those remaining with the owner. A sound-looking building can still be expensive to run.

 

[lena.voss]

I would work backwards from net income rather than debate whether 4.3% gross sounds reasonable. Deduct rates, levies, insurance, management, vacancy, maintenance and turnover costs, but exclude financing so properties remain comparable. Then run the debt scenarios separately. Personally, I’d want at least 4% net before financing for this kind of operational risk; given the starting gross yield, that looks difficult unless some quoted costs are already covered.