Can I place this investment into a SIPP?
Buying Apart Hotel Rooms within a SIPP / Pension is specifically permitted as a property investment, unlike direct residential property investment.
What happens at the end of the lease to the hotelier?
The hotelier has an option to extend their lease at the expiry of the 20 year term by a further 15 years.
In the event the hotelier does not wish to extend their lease then the management company will be obligated to source and identify an alternative hotelier on the same commercial terms as the previous hotelier. In the event that a hotelier cannot be identified after a period of 12 months of active marketing, then the management company will obligated to endeavour to obtain a change of planning use from a hotel to residential. Once the change of planning use has been obtained then the apartments can be sold or rented as 'normal' apartments. Thus ensuring a viable exit strategy.
How do I get to know what the turnover of the hotel is?
Yearly accounts will be available for the apart hotel investors to see. Quarterly 'revenue accounts' will also be made available so apart hotel investors can keep an eye on how the hotel is performing.
Does my income reduce if my apart hotel room has fewer people staying in it than other rooms?
No. You will be entered into a Rental Pool where you can expect to share the room revenue with the hotel, earning a percentage of the total revenue of the hotel. The Rental Pool will then be shared out to the owners of the apart hotel rooms in accordance with the price paid by each investor for the room. So an investor purchasing an apart hotel room at £115,500 plus VAT will receive 0.46% of the Rental Pool, resulting in the rental projection to the apart hotel investor being £6,122 plus VAT gross per annum.
Do I need to manage the apart hotel room?
No. This is a self-running investment with industry professionals taking care of your apart hotel room. Sit back and let the hotel manager earn you the projected return.
Do I need to undertake repairs or replace items within the room?
No. The hotelier takes on full responsibility of this through their full repairing and insuring lease.
How do I buy an apart hotel room when the building hasn't been constructed yet?
The building is to be developed by Vision Developments. An apart hotel room can be reserved off plan. legal exchange for the purchase of the apart hotel room will take place within 2 months of a reservation, and legal completion of the purchase will take place once the construction is completed.
What money is required to reserve an apart hotel room?
A reservation fee of 1% of the purchase price will reserve the apart hotel room for a period of 2 months until a purchase contract is received by the apart hotel room investor from the developer. Once the purchase contract is received the reservation period will be extended by a further 2 months during which time the purchase contract must be exchanged.
What money is required to exchange on the purchase?
Upon exchange a 20% deposit will be payable, with the 1% reservation fee included in the 20% exchange payment. The remaining 80% of the purchase price will be paid once the construction of the building is completed.
What happens to my deposit?
The developer will use the deposit monies to contribute to the costs of construction. The deposit paid by the apart hotel room investor will be insured by a reputable insurer, so in the unlikely event the development was not completed within a set timescale then the deposit would be repaid.
We have found that there are some typical questions that are asked when investors are considering this opportunity. Whilst we would be more than happy to answer any specific questions on the phone or by email or indeed at a meeting, a number of typical questions have been answered below.
What legal interest am I buying?
As an apart hotel room investor you will purchase a 199 year lease of your apart room. This room will be 'owned' by you in the same way as many residential apartments are owned i.e. you will 'own' your apart room and have access rights across the common areas such as the corridors and entrance.
How do I benefit from the lease to the hotelier?
When purchasing the apart room, a lease to a management company will be in place for a period of 20 years. Therefore, this is just like purchasing a residential apartment with a lease in place, but the lease for the apart hotel is longer.
The management company will in turn have a lease in place to the hotelier, for the same 20 years, and the hoteliers lease will obligate them to repair and maintain the property and pay business rates whilst the lease is in place. The lease from the apart hotel room investor to the management company will effectively ensure that the management company does two things:
- Obligate the management company to ensure that the hotelier carries out and performs all their obligations within the hoteliers lease i.e. repairs/maintenance, pay a percentage of turnover etc.
- Collect the percentage of turnover and place it into a Rental Pool for distribution to each of the apart hotel room investors.
Is any of my income guaranteed?
The hotelier will be putting in place a Notional Guarantee Fund. In the event that the gross annual income to the apart hotel room investor falls below 4% of the purchase price, then the management company will call for the shortfall to be paid from the Notional Guarantee Fund, thus ensuring that a Minimum Guaranteed Rental is obtained. The Notional Guarantee Fund will be kept in place for the duration of the hoteliers 20 year lease.
Can I sell my apart hotel room?
If you decide that an Apart hotel room isn't for you, or perhaps need to move on to another property investment then you can decide to sell. If you do sell an Apart hotel room then you will be selling it based on the income that the room can produce. Once the hotel is fully operating and the room rate and occupancy are at a level which is providing a steady income stream, then you as the owner can take advantage of the resale market.
Your Apart hotel room will be valued on a commercial basis according to the level of rental income. Typically the yield percentage is what the new investor will look at whether they be private buyer or a fund.
Can I stay in the apart hotel room?
Not unless you want to pay the room rate to the hotelier. The hotel is let in its entirety to the hotelier for a period of 20 years. During the time the hotelier is a tenant then you will not be able to occupy the apart hotel room unless you do so like any other person who books with the hotelier.
