Monday, 10 February 2014

Hotel Room Investments and Student Housing Investment

Hotel rooms and student housing investment belongs to a special class of real estate assets. They are strata titled property with a "business" elements to it. They are normally leased back to the operators to rent to prospective rentees with proper management put in place.

Would I buy this?

Needless to say, for me yield is the ultimate determinant of the investment. Such investment yields typically are from 7-10% nett yield.

Hotels are generally running at 60% yields and above. In SG, Hotels are running at newr full occupancy most of the time. You can imagine the cash flow coming in from hotel rooms business. They often have no competition over other accomodation modes and they are priced a premium over residential developments. In SG, perhaps a room at a luxury condominium at prime district can be rented for $1800 a month. A hotel room might set you back at $300 / day. In essence, there simply is no comparison for such short stay arrangements for tourists. The risk is due to economic downturn, and any pandemic, war issue, tourist arrival rates might fall and the business might go bust.

Student accomodations or dorms can be had in any place. Dorms are high yielding properties however due to the long tenancy period, students can often rent at residences outside of the Dorm for about the same price. Hence, premiums for student accommodations are priced at a lower end of the spectrum to attract students. Students can always rent a room at a normal residence at about the same rate. Students are also price sensitive to rate changes and hence, the prospect of increasing yields are not high.

Hence, looking at both investment, hotel rooms offer a higher rate of returns, higher risks, so choose wisely. For student accommodations, choose something that is 100% occupied and rents that justify their existence. Both of which you can't really stay in when things go bad.

Working for a Reason

I'm sure there are many people who have different views about investment. For mine, its simply not having to work anymore and have passive income coming in month after month.

When I started my investment journey, I scorned at the yearly returns of 10% yield. I wanted more... I thought the promise of Unit Trusts were much better. 5% per annum compounded and end of 30 years at retirement, I would have XX amount of money. I have changed my views of investment after so many years. The promise of price appreciation, inflation is but a "promise".

I've also met people who wish they could live the dream of a working in the 3rd world with a sustainable income. I say hey, get a house here in SGP and you can live your life. Some went on to find their dream home, renovated it to their delight and live a life of debt. Instead of "freedom" you got a liability. A Big One. I say, "thats not your objective for owning the house right?" "thats not even your objective for working in the first place!" You work to achieve a goal? No?

What do we work for? Have your even ask yourself that? Well, you know mine.

I've recently read Mr Money Moustache and it is a good read. This dude has retired since 30 years old. Not because he is very rich but because he has controlled his spending. He has rationalised that having a passive income of $27000 annually for him and his family would suffice and he and his wife are stay at home parents spending quality time with their two kids, cycling to schools and have all the time in the world to entertain their friends at home and doing whatever that pleases them.

Approaching why do we even work... have you found yours and have you figured out how you could reduce working life to improve living life?