Written

For

The

Australian

-

Horror

tale

of

Quest

a

warning

for

serviced

apartments

investors

An 8 per cent rental yield with no tenant headaches. Sounds like the holy grail of property investing, right? Well, ask the 72 owners at a Potts Point Quest serviced apartment block how that's working out for them.

Here's what's unfolding. Quest Apartment Hotels, the Singapore-owned operator, runs a franchise model where mum and dad investors buy the apartment and lease it back to a Quest-controlled entity on a long-term deal. In good times, the rent flows regardless of occupancy. In bad times — well, COVID-19 has exposed the ugly underbelly of this structure.

Rents stopped. Then partially resumed. Then stopped again. Now owners have been served a proposed deed of termination that not only kills the lease but tries to strip their right to sue and gags them with confidentiality clauses. Charming.

The kicker? The lease isn't even with Quest itself — it's with a shell company holding no meaningful assets. Every property has its own shell. Good luck chasing them through the courts.

Tania Waterhouse, a tax lawyer and former ATO director, is one of the affected owners. If a superannuation lawyer got caught out by this structure, what chance do everyday investors have? And that's the tragedy — most of the 72 owners are unsophisticated mums and dads, many holding the property inside their SMSFs and relying on it for retirement income.

There are other landmines too. Commercial zoning means you can't actually live there for more than two weeks or rent it on a standard 12-month lease. Banks slap tougher lending restrictions on these properties. Resale values are hammered by the restricted use and long lease terms.

My take: headline yields are seductive, but they exist for a reason. If a deal offers returns well above the market, the risk is buried somewhere — usually in the fine print. Before signing anything like this, get a lawyer to dissect the lease and an adviser to stress-test what happens when it all falls apart.