Are Apartments Still A Good Investment?

The Simple Answer Is Yes

Yes, apartments are ok to buy but you need to be selective. We explain some of the diligence we apply to the purchase of an apartment.

Selecting The Right Apartment

Apartments grow at a slower rate than houses and townhouses but they still grow in value, provided you choose the right one. One bedroom apartments grow at a slower rate than two bedroom apartments so if it’s growth you are chasing, forget one bedroom apartments.

Not all Apartments Grow In Value

If a one-bedroom is all you can afford, go ahead and buy, but don’t expect to sell in the future and be left with a lump sum significantly higher than what you put in to the purchase. Properties like this are better off having the debt cleared and used as an income to add to your regular income to leverage you in to your next investment property faster.

New Versus Old

Newer apartments in larger blocks are springing up like weeds. They usually offer a nicer fit out but come with very cramped floor plans and smaller bedrooms. You walk in the front door directly in to the kitchen lounge dining. The bedrooms and bathroom often also come off this central room.

We recommend buying apartments in smaller, solid brick blocks in nice residential streets surrounded by established real estate. The apartments we recommend to buy usually have an entrance hall with each of the rooms separately leading off the hallway. These apartments offer more character and substance as a property, have better floor plans and have larger rooms. We usually like to limit the block size to about 20 or so depending on the block.

Simple Checks

There are a couple of simple checks you can do on any apartment block before you internally inspect the property. The first thing we do is walk around the building and look for cracks in the brickwork, missing mortar, rotten windows, rusted gutters, general untidiness and other maintenance items. If you have eight apartments to get through on a Saturday and the inspection times are all close, you could do this on a Friday afternoon before the weekend. Guaranteed there will be at least two or three that you can cross off the list by completing this check prior to the weekend, leaving more time to spend inspecting the apartments in better blocks.

Once inside the apartment, other things to look out for are major cracking in the plaster, door jams that don’t close properly, and significant mould.

The vendor’s statement, or section 32, as it is known, holds key information relating to the maintenance required on a building. Read all the body corporate information and speak with a body corporate manager for reassurance. A good manager should take the time to speak with you to offer an insight in to the state of the building and know off the top of their head if there are any major works planned for a building. If there are upcoming major works planned for a building, find out the costs and ask how they plan to raise the funds.

Not all major works are a turn off. For instance, if all windows in the building are being replaced and owners are required to contribute a few hundred dollars per quarter for the next couple of years to the maintenance fund, owners aren’t likely to experience bill shock. Major works contribute a capital appreciation for the building.

Areas

When an area is achieving great results at auction, it begins to attract investors. A lot of inner city areas in Melbourne are great areas to own property in. Unfortunately, many of them are overdeveloped, with an abundance of new developments being used as investments and in most suburbs, many more of these apartments are under construction, awaiting settlement and delivery to the market. Many of these areas are over developed and not necessarily the best places to invest in an apartment.

Areas to Avoid

Some of the areas we advise to avoid buying apartments in that are currently saturated with investment grade apartments with many more due are Richmond, South Yarra, Prahran, Brunswick, Brunswick East, Fitzroy and Fitzroy North. You can tell from the suburbs mentioned it’s like a ring of similar radius around the CBD. These suburbs are easily identified by simply taking a drive around the neighbourhood on the main roads to note how many developments there are, how many are in progress and how many derelict commercial sites there are that look like they too will become apartment blocks.

Areas to Buy In

The areas we recommend buying apartments in are usually within two to five kilometres past the areas to avoid. For example, in the east, instead of buying in Richmond, perhaps look in the further parts of Hawthorn and Camberwell and head as far out as Box Hill and most suburbs in between.

In the south-east, instead of Prahran, look in the further parts of Glen iris and even Ashburton. Just as long as you make sure you buy near shops, transport and schools, which are the driver for growth and attractiveness to tenants.

Golden Rules

• Don’t buy an apartment on the ground floor for lack of privacy and security unless it has a courtyard
• Always buy with some outdoor space, at least a balcony
• Don’t buy unless there is a car space on title
• Unpainted blocks are preferred but not essential to reduce maintenance
• Don’t buy a property with unreasonable overheads/running costs
• Physically inspect the entire building inside and out
• If there are tenants who ask them about the apartment, they’ll be honest.

IPB have been successfully helping time-poor busy professionals and families secure property for residential and investment purposes for 11 years. We speed up the buying process, remove the investment of time from the search, access off market properties and ensure your property grows well and is attractive to tenants. Call Justin to discuss your buying requirements today.

If you are contemplating the purchase of an investment property to add to your portfolio and would like to find out how a buyers advocate can help you buy at better prices, in a much shorter time frame and without a massive investment of effort, Justin can be contacted on 0418 334 126 via email justin@ipb.com.au or visit www.ipb.com.au