Buy a Rotorua apartment and the seller will throw in an office in downtown Auckland too

Buy a Rotorua apartment and the seller will throw in an office in downtown Auckland too

"Buy one, get one free" deals are nothing new, but it's an unusual way of selling real estate.

But that's the deal that's being offered in the sale of a Rotorua apartment (see photo above).

The one bedroom apartment with a car park is being auctioned by Ray White City Apartments on November 21.

Nothing unusual in that, but according to the property's listing page on the Ray White website,  "When you buy this apartment, our seller is giving away a free 30 square metre office space in the heart of New Zealand's other favourite tourist destination, Auckland's famous waterfront precinct."

It's a deal that's obviously designed to appeal to investors, or perhaps those looking for a different take on the traditional home and income.

The apartment has a floor area of 38 square metres, so it's compact, although there are many that are a lot smaller in Auckland.

And it's rented out at $330 a week and has provided its owner with a high level of occupancy.

So what's the catch?

The office space is in the Scene One apartment complex on Beach Road in Auckland's CBD, just around the corner from Britomart.

It's a great location, but Scene One is a leasehold complex.

The ground rent for the complex is reviewed every seven years and was last up for review in 2018, although the revised rent is yet to be finalised.

Currently the ground rent on the unit is $7368 a year, with rates and operating costs (the equivalent of body corporate fees) taking total outgoings on the unit to $10,391 a year.

But until the new ground rent is set, there's uncertainty over how much those outgoings will be over the next six years.

And the complex faces remediation issues, with costs yet to be finalised, creating more financial uncertainty.

And it's currently vacant, although its potential rent has been estimated at $380 to $400 a week.

So there's a bit to think about.

Dominic Worthington, the Ray White agent handling the sale, said he wanted to try a marketing approach that hadn't really been done before in this country.

But isn't it just another way of presenting a sale of two properties that are offered as a single lot?

Worthington says no, because the apartment has a declared reserve of $199,000 compared to its 2017 Rating Valuation of $209,000.

"So the office hasn't been capitalised into the reserve price at all," he said.

If the apartment sold for its Rating Valuation of $209,000 and continued to be rented at $330 a week, it would provide a gross rental yield of 8.2%.

The key to making a success of the deal will be in securing a tenant for the office as quickly as possible, because as long as it's vacant the owner is responsible for all of its outgoings with no income coming in from it.

Below: The Auckland office space being offered along with the Rotorua apartment.

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The commercial office space being given away for free still looks likely to be overvalued.

1) unknown ground rent, likely to be an increase
2) remediation costs

Looks like a massive money pit and has negative value. Owner most likely got caught in a bad deal, now trying to pass the parcel to someone else.

Although there is the old adage "you can't go wrong with real estate". LOL.

That adage doesn't really apply to people who rent property which is what the Auckland property is due to the owner having to pay ground rent on the lease.

Noobs and numpties go wrong all the time with real estate... others not so much if ever. This 2 for 1 proposal is bound to be a good one for you... it has your name written on it

I see it as the opposite the Rotorua apartment is a sweetener to offloading the Scene 1 disaster

Someone who is an expert in the assessment of remediation work might have a more accurate assessment of the potential cost. But here are some possible numbers.

If you allow 200,000 - 250,000 in remediation work for Scene One then the combined package is worth zero, or even less than zero.

You could still resell the Rotorua property on it's own and after sales marketing costs and commissions and the net proceeds wouldn't even cover the potential remediation costs of the Scene One property.

The reserve for the combined properties is $199,000.

Notice that the real estate agent is trying to sell via auction so that the terms are unconditional, and hence transfer all the risk to the buyer, and have no recourse to the vendor.

BUYER BEWARE. It is a potential trap.

Buy an apartment in Roto Vegas, and get an uncertain but possibly massive liability in Awkland. Cui bono?

First Prize: Neither
Second Prize: Roto apartment
Third Prize: Roto apartment and Auckland unit

Yeah a lot of those luxurious looking apartment buildings near Auckland's waterfront Viaduct are currently going through renovation work, so they may have water tightness issues. So not surprised owners trying to off load them.

This goes to show its not all roses out there in spite of what the big realtors will have us believe from press releases about how good things are

If this was reported the way house price increases are reported then I would expect an NZH headline saying commercial property dropped in value by 100%.

The herald's paid by banks and RE agencies, so the headline will be something like "Amazing 2 for 1 bargain - Your chance to get on the Property Ladder!"

Putting the snake in Snakes & Ladders.

I am surprised they are not giving away the offices/shops under these apartments. About 80% of them have been empty since they were built about 8 years ago.

the only thing good about the Scene One is the yum char place if it's still there!

It’s called China Yum Char and yes it’s still there.

Classic example of an old saying "roses are beautiful; but careful of their thorn"

I can't see why anyone would invest in an apartment in Rotorua- there's no lack of land there. Tourism is the dominant industry there and it isn't a university town. Who will need an apartment? Run an AirBNB? Rent it out to HNZ? What will be the cost of maintaining that apartment? The office space freebie looked good initially until the fact that the economy isn't steaming along at the moment and there's no lack of office spaces for let in Auckland. The high completion for tenants coupled with the leasehold status translates to a cautionary liability for anyone who undertakes the deal.

They're all non weathertight and trying to fix a fundamentally flawed design more often than not, exacerbates the issue