My brother & I are currently looking into purchasing a Studio Apartment as an investment. We are looking at apartments under 50sqm (mostly around 30) for sale under $200k and both want to put in $20k (thus having a 20% deposit).
So, my question actually comes in two parts:
1. What is the likelihood of finding a bank that would loan 80% on a small space?
2. We were hoping to get separate loans for "our portion" of the property (so that we can track our own interest expense and aren't tied to each other if we wanted to make additional repayments) . Is it possible to each get a bank loan where there would be two parties that held security over the property?This is our first foray into property investment so any help would be very much appreciated.
Thanks
KirstyHi Kirsty
Welcome to the forum and hope you enjoy your time with us.
At 30 sq Metres and being a studio unit i think you will struggle.
Have a couple of lenders who will do 30 sq Metres but they want the property to at least have 1 bedroom or certainly have a separate bathroom / laundry.
Also in regards to separate loans you could certainly split the loan in half but would have both names on each loan split. (Still going to be jointly and severally liable for the entire debt).
You in turn could differentiate between the 2 splits.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi KirstyL,
At some stage I was looking at small apartment for investment both e.t.c. "student accom" & hotel investment. But I find when I walk into a bank they usually will not offer a loan if the apartment is less than 50sq & I hope you're not looking at student aprt because the banks are not very favourable towards them, they see this kind of property as a "high risk" property due to the turn over rates of tenant I believe, the only bank that did gave me an offer was from ANZ at that time and they offered a 60% LVR, imagine how much cash/equity you need for a 60% LVR on a 200k property – 80k. And if I have 80k I would rather invest in a property that have good capital growth/cash flow. Not sure if this is still the same trend though, the last time I checked with the bank it was about a year ish ago. Some of the bank I checked with are CBA, ANZ, bankwest, Bank of Melb, St George.
That remind me of this great deal that came up for a studio for 100k, it was under bank mortage and the bank is trying to offload it, similar property was selling for 150k so I know it was a bargain, went to inspect the property and yup it was small, about 30sq, and the first thing the agent told everyone was, yes its cheap but the problem they had was no one could get finance…. Anyway I'm glad I didn't get it because I realised later that it was actually hard to offload the apartment, at least at that area. Mind you it had a gd +ve cash flow.
I guess it really depends on your goals for both your portfolio. I know most apartment are good with +ve cash flow but most of them doesn't seems to have strong capital growth and is more difficult to sell off later if you bought one at a condense area.
Just my thought here if I have 40k to spend I'll get maybe a unit instead for the above reasons. You don't have to wait till you have 80% LVR to invest, I think as long as you can deal with the on-going servicing of your investment property comfortably then you'll even do with a 90% LVR.
But if guys decided to go ahead I suggest you get a good broker that understand the apartment section to advise you on your finance option as I've mentioned don't think it was easy to get finance for small apartment, but gd broker should know.
Richard – do you think the cba property share might help – sep loans over the same security. Can't seen them doing 30sqm though?
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
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Don Yes that was the product i would have suggested that would get around that issue but CBA wont do studio units.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Its a good one – I just got an email yesterday that they are back in the studio market but i think the property mentioned here is just too small. Maybe for Kirsty L find a better property ( one that makes better use of her equity ) combined with that product or something else might get her going on the right track.
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
Hi Richard
The type of apartment that we are interested in has a separate bathroom but the bedroom/living area/kitchenette are all in a combined space. Do they loan as high as 80% (I have had a couple of realtors that have suggested that they would only go to 60%).
Hi Eddy
Steering clear of short-term & student accom. A lot of the places I have looked at have the option of either short-term pool or longer-term rentals (3,6,12 months), and we definitely want to get a longer lease. We want to buy inner-city Brisbane and it would be very difficult to get an apartment for $200k otherwise we would go with that option. We are looking for a positive cash flow property rather than a capital gain, which is why we are looking at the area/type of property.
Kirsty
I would steer clear of it if you are having dramas getting finance, think about down the track when you resell at a later date, your pool of potential buyers will be small due to people having trouble getting finance for these types of deals and lending critera could change too a better idea ive seen done is buying larger studios 45sqm plus n converting them into 1 bedroom apartments.
Hi Kirsty
if you want to email the real estate link to the property so i can have a look for you and let you know what is achieveable.
Don, they have no minimum square metre policy but must consist of at least 1 bedroom. Got a deal going thru for a forum member that is only 32 Sq Metres and that has been approved.
Cheers
Yours In Finance
Richard Taylor | Australia's leading private lender
Kirsty ..
I would be repeating myself if I said that your current option for purchasing a unit under 50sqm is a bad idea .. i've written almost the same thing over and over on this forum regarding that option.
So I wont repeat myself on it.
All I will say is that you will be left with a bad egg. A bad egg is something that the next potential purchaser will turn his nose up at too, that the bank wont lend on because it meets poor criteria (less than 50sqm) and it will be hard to sell unless you discount it.
There are better options. I am invested in a certain area at the moment countryside where the properties are cheap but the banks are prepared to lend on them .. the size is just under 10sq (94sqm) and the position is comfortably close to town. In other words .. unless the whole town collapses .. I will always have a tenancy there. BUT .. if i want to sell .. the banks are prepared to lend money for the next person to purchase from me. Did i mention that they are 100k EACH? (there's your deposit working for you !) And returning an average of just over 7% (so the expense is on covering the rates water and owner corp rather than the loan)
There isnt a global secret to good investing. There is a simple rule. It has to be liveable for the tenant .. and attractive for the potential purchaser. If you cant see yourself losing your shirt and wanting to stay in that place .. why should anyone else?
Thanks all for your feedback. You’ve given me heaps to think about. Might have to go for something a little bigger…..
Hi Kristy,
Methinks you also need to look beyond the property.
As matters stand at the moment it would appear as if your focus is on grabbing a property without any due consideration to the long term picture.
Some points for you to consider.
1. How will you and your brother's partnership develop?
2. What exit plans do you have? – it is highly unlikely you'll be able to remain as 'partners' for an extended period of time. New relationships will be formed, you'll probably want your own home at some stage and so on. All of these factors can weigh heavily on your partnership.
3. What is your partnership strategy over the short, medium and long term?
4. How will this first property help/hinder this strategy?While some of these questions may be a little hard to answer at this point in time they are important as you do need an 'investment road map' to work towards.
For what it is worth – you may be better off spending some time working through these questions, adding to the 2 x $20K and then getting to work on your strategy.
xdrew wrote:Kirsty ..I would be repeating myself if I said that your current option for purchasing a unit under 50sqm is a bad idea .. i've written almost the same thing over and over on this forum regarding that option.
Hi Kirsty,Very much agree with xdrew on this one. Most lenders keep it at 40-50m2, but this small is not much interest out there so you would be limited.
I would steer clear.
AM
If you are buying a product with no capital growth whats the point. There are far better investments out there
Nigel Kibel | Property Know How
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Hi Derek,
Do you mind give me the countryside place where the homes are around 10sq, but only 100K each? Thanks.
Cheers.
JennyFor someone who would interested only in positive cashflow and capital growth was not on the agenda, would studio still be a good investment? I am in Melb, the studios I’ve seen in the city here are deadly tiny, only around 17sq meter to 25 sq meter. There are larger ones of course, but the price tag is almost the same as 1-bedroom, in which case, I’d have gone for the 1-bed.
Regards,
Jennyjenny111 wrote:For someone who would interested only in positive cashflow and capital growth was not on the agenda, would studio still be a good investment? I am in Melb, the studios I’ve seen in the city here are deadly tiny, only around 17sq meter to 25 sq meter. There are larger ones of course, but the price tag is almost the same as 1-bedroom, in which case, I’d have gone for the 1-bed.
Regards,
JennyThe dwelling must be at least 40sqm for lenders to consider the property as security. In terms of the cash-flow my experience is that the cash-flow isn’t worth the investment.
TheFinanceShop | Elite Property Finance
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Thanks a lot, TFS. I’ll reconsider my strategy about studios. What about regional properties? They also have good cashflow. Are they any better than studios?
jenny111 wrote:Thanks a lot, TFS. I’ll reconsider my strategy about studios. What about regional properties? They also have good cashflow. Are they any better than studios?Do as much research as possible. I personally would stick with metro areas because it is what I know. If you find a property – send me the property address as we run free APM reports.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
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