Do apartments make a better investment than houses and what are the buying rules for choosing the area and price? The attraction to buy at lower entry level for good cash-flow comes with a risk. Are you conversant with due diligence to future-proof apartments?
Buying rules to
Purchase an Investment Apartment
Do apartments make a better investment than houses?
The land appreciating argument has been illustrated here, but when it comes to compare the performance of investments, then ultimately you would look for housing with growing demand and limited in supply. For that reason, you as investor would be wary to spend money on areas, which may become over-supplied (large developments) and remote areas with limited infrastructure (motorway connections, public transport, shops, etc).
Also been mentioned, to unit title properties like apartments are body corporate levies (strata fees) attached. To deal with that apartment investors need to be cannier than people buying houses; buying in trendy areas, following demographic shifts and acquiring properties which are customisable to match with futures demands. Remember topics like smaller households and affordability do not go away.
Possibly you already know apartment buildings have been identified as leaky and earthquake-prone buildings. Recent changes to the building compliance code and Unit Titles Act reflect that but have consequences regarding costs to be paid as strata (body corp) fees. Always ask yourself the question—who is going to buy apartments in large blocks in the outer suburbs in the future?
Compared with houses apartments are a better cash-flow investment if you follow three simple buying rules:
· Must not be leaky or have any outstanding remedial work,
· Size must be 50 sqm or more
· Must have a functional body corporate (accessible chairperson, committee members and documentation)
Market and cash-flow consideration
Compare market rents in your chosen area, price per square meter of the apartment and find out the vacancy rate in the building. When viewing the apartment building identify your target renter; note the difference between cheaply built rentals and residential city apartments.
Look at the social culture in the building. Often underestimated are communities that impact the re-sale value. The climate in a building with small rental apartments, preferred by students, will be differ from apartment blocks with residential two and three bedroom units occupied by couples or families.
Due diligence on apartments
The due diligence process for apartments is more complex. You have to deal with the seller’s agent, the body corporate and the building manager to find out the condition of the apartment and building.
The recurring expenses like insurance, council rates, body corporate (strata fees) and hot water can be provided by the vendor (disclosure statements). For the expected costs regarding maintenance, repair and long-term funds of the building you have to view the body corporate meeting minutes, AGM protocols and building manager’s reports.
For inexperienced buyers it can become a quite costly experience whether the building has a current "building warrant of fitness" and outstanding remedial work or not. This information inclusive the weather tightness history can be obtained from the City Council.
Apartment investor—be a winner
If you can’t create a buffer zone between the current expenses and the expected increases for insurance premiums, body corporate levies, council fees and inflation you would end up with a negative cash-flow. That is a risk especially for brand-new apartments with no history. The first budget usually made by developers is often very optimistic to make apartments attractive to buyers.
Units (cross-lease title, apartments/townhouses on unit title) are often elected to buy on a lower entry level and make good cash-flow investments.
The winners in investing in apartments are those who secure at the right price and good quality established apartments in inner city and close-by suburbs where the demand is high but the supply constrained also in future.
If you are interested in more - feel free to use QUICK SEARCH (top right corner) or go the library directly. Good luck.
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Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.
His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of life—how to avoid pitfalls in unfamiliar territory when investing or forming relationships.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
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