Hi guys,
I am looking for some advice from real people with real experiences. My sixteen year old daughter was lucky enough to inherit $50K as a start in life. I am the executor until she reaches 21. I am looking at getting a good return for her so that in five years her investment has improved way beyond the CPI rate.
I wanted to invest in property as I am a believer that this is the best investment for medium to long term results. I was not so keen on taking on another mortgage, and so I have had a little peek at buying a car park space or perhaps two in the Melbourne CBD. However I have had some mixed opinions on this, and I am put off by the recent tax applied to these. Any thoughts?
So I am thinking of braving it and taking on another mortgage. I would use the $50K as a deposit on a residential property and then borrow an amount that could be serviced by the rent without any additional contribution by me (which I really can't afford).
As a novice I am attracted to the idea of a serviced apartment. I have also seen a couple of student accommodation apartments that appear attractive.
You see I have a couple of friends who have done the more typical 3 bed suburban investment, and their experiences are not great. Two of them had bad tenants and this resulted in repair bills of $10K and $12K respectively.
What are your opinions please? I don't want to buy a headache or any problems for my daughter.
Cheers…
Surburban investments tend to involve land which is the part of the property that goes up in value (apartments are not great because they are just a box that depreciates).
Why did your friends not have the necessary insurances in place?
Speak to AAMI about BUILDING and also LANDLORD INSURANCE WITH TENANT PROTECTION. Understanding the manner in which you can insure your investment will make you feel more at ease. You can get a dodgy tenant in an apartment just the same as in a house in the suburbs.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks JacM.
I will investigate the tenant protection insurance to gain a greater understanding and consider my options.
I must say that I have previously heard of your argument that 'it is the land which appreciates' and therefore an apartment, which occupies far less actual land, or just air space, is less likely to appreciate. However, from my novice observation, this would tend to go against recent observations, which show that apartments are in great demand, and that demand drives the resultant prices.
4 eggs ample…. The apartment that I own and occupy (purchased last year) has appreciated by 20% in nine months.
The other side of my thinking is that an apartment requires far less in terms of maintenance and is quicker to rent.
I may be wrong, and that's why I am here on this blog.
Thanks..
Be careful with serviced apartments and student housing. The yields can be quite attractive since the price of the properties are slower in comparison. The financing of these properties may be more difficult since the size of the unit generally is less than 50 SQMs. A larger down payment may be required and you may have issues reselling to another buyer. This may be why these properties have not appreciated in value as much as units 50sqms or larger.
The 50k in my opinion is a decent amount to buy a unit that would be large enough to satisfy conventional mortgage requirements. Buying a property for your child is great for them to have as it appreciates for the next few years.
Refer to RPdata on Australian suburbs to get an idea of purchase costs and yields across the country. Here is a link of the report distributed by CBA prepared by RPData: http://www.sydneypropertysite.com/p/sydney-property-resources.html
Cheers
Thanks Globaltraveller,
I appreciate what you say about the finance. I went to my lender the other day (RESI) and told them about my initial thinking. They said that they do not normally finance either serviced apartments or student accommodation. When I asked why (based on the fact that they will allow for a rental return that covers slightly more than the mortgage and with a 20% deposit that the lender ought to feel secure) they could not provide an answer???
They have said that they will investigate affiliated lenders (such as St George) and let me know. I am surprised and now cautious.
Thanks again.
Hi Novice,
I think your daughter is very lucky to have a parent like you who is keen to set her on a profitable path. Another benefit of property is that your daughter probably won't be as tempted to tap into her inheritance, as say, a share portfolio.
I agree with others who've warned against serviced apartments, for all the reasons mentioned, but I think 'ordinary' units over 50 squ. metres, are fine, and as you say, would have less maintenance issues if you are not close by to supervise. I don't know where you live, but there may be some outer coastal or regional areas with good growth prospects that have affordable houses or units, or you could target somewhere like Cairns, which has had a period of weak demand, and pick up a unit that would be covering its costs, for under $150,000.
I also think it would be good to see an accountant first, in case there are any negative aspects of the plan none of us have foreseen.
Regards,
G
Thanks G.
I live in Melbourne and so I suppose I have been limiting my initial investigations to Melbourne and surrounds, as I am comforted by the ability to 'see' the property and attend if I have to. However, given the prices in Melbourne for properties that are not serviced apartments I am tempted to have a look at other areas.
I shall need to investigate places like Cairns and just get my head around the distance.
Many thanks…
Look at houses outside of Melbourne. Possibly even Geelong or Ballarat.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Novice I would look at units in carlton. From experience and looking at data CG on units either exceed or at least equal that of houses. if you buy new units you will get a lot of depreciation. but with 50k you would only by older units that have already depreciated. With units generaly they are sitting on higher value land perhaps worth millions. The land to asset ratio is higher. If you buy a house in the suburbs the land component is small may be only be 100k and the house 300k then you have mainaince / garden issues to worry about. With a unit there will be a sinking fund and manager to keep it in good condition so depreciation isnt an issue, infact it s value can be increased by good management wanting to do improvements. There will be Body Corp fees but this is compensated for by low rates and Insurance.
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