Buyer beware

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Owners of managed apartments are tail-end Charlies on money trail.

Owning a managed apartment is like being the runt of the family – you often get last lick of the cream bowl.

With so many managed apartments on sale in Queenstown, Mountain Scene was grateful to stumble across details of the owner-investor deal at a prominent complex – Fernhill’s swanky three-bedroom Heritage Villas, managed by the Heritage Hotel opposite.

The money trail starts with visitors paying to stay – so how much will they shell out?

Don’t get carried away by “rack rates” – virtually no one pays list price these days.

The one-night rack rate for a Heritage Villa is $1230 including GST, but the hotel’s website has a July offer at just $575.

Even that might be optimistic – owner income statements from April on two Heritage Villas show an average rate of $320 including GST.

And April was an “excellent” month, Heritage Hotel told owners, with the two villas between them averaging 42 per cent occupancy – “occupancy” being the other magic word for would-be apartment investors.

So over the 30 days of April – and we’ll exclude GST from here on – these two villas took in average guest rental income of $3600 each.

Let’s look at how that $3600 is sliced and diced.

First you’re docked “room expenses” – well, somebody’s got to clean them, and those bathroom goodies that guests nick have to be replaced.

Room expenses aren’t cheap – the Heritage charged these villa owners an average of $119 a night.

And then there’s sales and marketing – because you have to promote or die in this business. How does $8.52 a night sound? Then because hotel and villa complexes don’t run themselves, there’s another deduction called “administration” – the $14.24 per night charge isn’t explained.

“Repairs and maintenance” is at least self-evident – it’s what you shell out after some rock-star guest has tied one on. We’ll deduct $10.46 a night for that.

And Queenstown Lakes District Council naturally wants its cut – rates on the two units for the month averaged $296 each.

Then there’s a “body corporate” that needs feeding – in this case, a specialist Christchurch company that handles exterior maintenance, insurance, Sky TV, pest control, window cleaning and so on – an average of $244 per unit per month for that.

Finally, the ubiquitous FF&E charge – a deduction for future replacements of “furniture, fittings and equipment” as they wear out. Can’t have guests complaining about worn-out mattresses when they’re paying top dollar to stay in your villa, can we? We’ll take $107 per unit for the month and put it aside for a rainy day.

There, that’s everything. What are we left with?

Er no, it’s not everything. Silly us, we’ve forgotten the “management fee” – 12.5 per cent of every dollar paid by guests goes to developer Rod Nielsen’s Little Rock Management company, which then splits it with the Heritage Hotel.

So how much is an owner left with? Not a lot when all’s said and done.

Taking that one month of April and averaging the two villas, owners get about $45 per guest night – just 16 per cent of what guests paid.

Still, while Heritage villa owners have well-publicised problems with developer Nielsen, they’re happy with Heritage Hotel management, giving them a vote of thanks at last month’s body corporate annual meeting.