I am looking at getting another investment property.
In the past I have always bought old homes with big blocs "Etc".
But, I have found an interesting development site being built in http://www.realestate.com.au/buy/by-mxwkhe/list-1
I went past the site, two weeks ago and the real estate firm who is handling the sale is a guy who I have known for a long time.
What are the Pros and Cons of new apartments?
In a nut shell, I called the owner of the real estate firm "who I have known for while" and have asked if I could do some part time sales work on the weekend, My plan is to understand the apartment business more but also before I put or make a offer on the apartments I want to see how the market is reacting to the prices etc.
My wife is a drafter and the architect firm she works for are doing some due diligence on our behalf to make sure if the developer has a good reputation, the architect they are using are good “etc”.
But from a investment point of view has any one had a good experience in apartments before?
PS building will be finished in 2014DerekMember@derekJoin Date: 2004Post Count: 3,544
Never bought one – probably never will.
Being OTP there will be significant financing issues you will need to consider as the vendors and their contract will require you go unconditional within 30 days (or similar) BUT the bank will not provide unconditional finance until they can value the property – and this only happens right at the end when the property is completed.
In between time you have either gone unconditional or at the very least signed a contract which you haven't been able to fulfill and are therefore at the vendors discretion to re-sell as you haven't met the terms and conditions of the contract.
Another issue is that estimations for body corporate and rates provided by the developer tend to be on the low side so the purchase of an apartment appears to be more attractive to prospective buyers. When the property is completed the strata fees, in particular, get significantly ramped upwards thus making the investment less attractive.
The value of your apartment will rise and fall with the market. There is not a lot you can do to influence the value of your investment.
Some quick ones off the top of my head.Jamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069
Derek's spot on with his points.
The two biggest issues are the finance (you might be able to get approval today based on your current circumstances but who knows what the world will look in 2014 – your circumstances may change, bank lending policy might be different, etc).
The valuations not stacking up is another drama – particularly if you require a high LVR to get the deal done.
I have to agree with you both 100%
another question, i have asked my self is this, in the future say 20 of the apartments are on the market, if they all look the same etc the one who will sell the quickest is the one with the lowest price.
Thanks for the info gents
cheersJamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069
Yep – that’s an issue to. A few cheap sales can devalue yours. You’ll also be competing for tenants once the development is complete.
I'm not a huge fan of OTP purchases in the suburbs unless you get a discounted deal which many developers are now offering (feel sorry for people who bought at full price).
First of all, look at the suburb. Luxury apartments in Sunshine? Doesn't match the demographic.
OTP isn't all bad as there are some great depreciaiton incentives, but you need to look at the Owners Corporation Fees. <moderator: delete advertising>
Well I actually did some research and to be honest it’s a very cheap built apartment after some good research!!
Thanks all for your input
One thing I’m noticing is that property investments are eating to much cash flow
Well, when it comes to investing, I'd figure it would be much better to invest in a house only if the potential home buyer wants to live a little further away from the city. If you want to attract such buyers, it would be a good idea to steer clear from investing in apartments.
It might be cheap but is it an attractive proposition for tenants? Will you have a good quality tenant? Will you be able to lease it? how much for? (note: Sunshine rental market is not suited to apartments)
Is the outlook for Sunshine suitable for apartments? Will you have a decent re-sale value?
Whilst the initial cost is cheap – your tenants will be too.DWolfeParticipant@dwolfeJoin Date: 2009Post Count: 1,253
I'm amused by the negativity concerning apartments as investment. I'm soon to begin construction on a small block of 10 in the outer East of Melb (no not advertising here). It seems that in some circles apartments are in vogue for investors. High depreciation (low land content, high building content) and in the right areas tenants are thrilled to be in new builds close to amenity. Particularly these older suburbs with heaps of dated housing stock.
I think the apartment Vs house argument has been long skewed to houses because the only apartments available were dog boxes in the city. Now with the urban infill change going on in Melbourne and smaller more boutique apartments being built in suburbs further out from the CBD, are apartments still a no go? I'm interested, partly for buyer sentiment but also from a change in mindset and demographic point of view.
For awhile there, townhouses and units were the devil, no one wanted them, people thought only poor people would live in them and everyone said, 'too small'. As the price of stand alone homes rose, people started buying units. Will this happen with apartments?
I think it will. I'm not saying I love all apartments, I do love scarcity, value for money and high yield, as well as a nice prospect of capital growth. But having said that, I have a tiny unit, and it's nailed all my other properties for generic growth because of the location.
Don't get me wrong, apartments make up a majority of our management portfolio and they can be great investments – if the location is right and owners take advantage of depreciation claims where they have bought OTP.
Some of the best yields I've seen of late have been for apartments.John MaxwellParticipant@john-maxwellJoin Date: 2010Post Count: 30
If the body corporate is handled properly, it can be very reasonable … we have done some deals on a Sunshine Coast Apartment complex right by the beach … and the body corporate is only about $2400 p.a … rent return is in the range of $520 – $550 p.w v’s about $600 p.w repayments at $80% LVR. Rental vacancies are also very low in the complex. I think apartments can be very good if you pick the good ones, and you know what you are looking for! I’d also suggest negotiating a buffer on purchase (from the vendor) to that you are comfortable for a few years with any shortfall as there is unlikely to be much capital growth in the next 2-3 years in many areas (ie buying under mkt value).WomeninPropMelbMember@womeninpropmelbJoin Date: 2008Post Count: 234
Dwolf- I am with you.
AND as I support all types of investment strategies- it has to be one that is RIGHT FOR YOU.
I have seen people purchase OTP and re sell before settlement to make $30K, $40K or even $90K – not even settling.
In my area- not Sunshine but FURTHER from the city- urban fringe – there are more apartments being built.
In my time as a Real Estate Agent- II found people like to live and will buy close to their parents and where they grew up. Think about it. Now people stay single longer and don’t necessarily want the whole house on the big block with the white picket fence- they SHOULD be able to live in the suburbs and not have the hassle of mowing the lawn every weekend. People want to be out enjoying the delights of what we have here in Melbourne.
Why would you say that Sunshine is not suited to units? I lived in Yarraville and Footscray – right next door- last time I looked it was upwardly mobile young urban adults who lived there.
If they can put up apartments all over the northern urban fringe where I live- and I said same thing- NOT IN MY BACKYARD- NOT HERE – NOT SUITED- and all be fully tenanted then sure Sunshine is just as suited as is Ringwood, or Glen Waverly.
So its not Carlton, or Inner City or Richmond- But these suburbs do not have the patent on unit developments.xdrewParticipant@xdrewJoin Date: 2010Post Count: 479
I avoid OTPs with a passion.
If I'm going to make a purchase .. I'll purchase what i see and feel and touch. And thats worth the stamp duty saving to me.
OTPs sell on hype. I dont buy hype in the stockmarket .. and I am not going to buy hype in the property market.
However .. to correct myself on the above .. I will purchase into up and coming areas with a market need for apartments.
Sounds contradictory? Not at all.
With an OTP you rely on pure speculation as to its finished product and potential. Thats a gamble, as you are reliant on developer following thru (not always the case), a trust in the quality of the finished product, and a guarantee of tenancies.
With an ongoing trend of an actual requirement .. the OTP is not such a gamble as you already know there is a need for the property approaching due to <insert need here> so all you are doing is matching the new demand with a property.
Dont make the assumption that just because there are apartments in the area .. yours will be desirable too. Make the enquiries and learn what people are asking for from the property managers .. make a better and educated judgement call.WomeninPropMelbMember@womeninpropmelbJoin Date: 2008Post Count: 234
In addition to what Andrew is saying – check the rental trend in the area- is there a decent population of tenants who will rent out your property. To be honest – with the trend toward staying single longer – there is greater need/desire in the market place.
When I was young and single – I lived in an apartment not too far from the city but not right on the fringe either. Suited me and will suit the growing trend of young (ish) professional women. I didn’t want to bother about property maintenance like mowing lawns.
If you must see and feel it, maybe you are telling me you have no imagination?
….. do your research and you will buy well.
There is a proliferation of OTP apartments AND people living in them so I cant see that they are all that bad.
Oh and people making money out of them. Just because its not for you does not mean its not for everyone else too.DWolfeParticipant@dwolfeJoin Date: 2009Post Count: 1,253
This is exactly the interesting part.
It's interesting what xdrew is saying about not being able to see or touch. So we know a portion of people will NEVER buy off the plan. I don't see buying off the plan as speculation.
I'll put it from my point of view. I know as a developer how long it has taken to get approved (long time) I know how much captial has had to be poured in (lots) so I know if I don't finish and get the product correct to the buyers satisfaction, I don't get paid. So from a risk point of view, the buyer puts in maybe 5% deposit, which gets stashed in the real estate agents trust account till much later in the piece. Not much risk, maybe opportunity cost if the deal goes under.
As the developer, if the deal goes south, all the money is gone, theres no going back. So rather than speculation on the part of a buyer, it seems to me like a small risk, the kind a person would undertake in a standard deal anyway.
As far as price increases in apartments and speculation, then thats another story. I wouldn't call people who are crossing their fingers for capital growth investors, rather plain speculators. And as said above, it all sounds like sharemarket (or gambling).
I think if the return is there, then it's a good deal. And then it comes down to being an unemotional investor.
I found what WomeninPropMelb said to be very interesting from a demographics/demand point of view.
I worked in the big box on the corner of Ballarat and McIntyre Rd, in Sunshine, many years ago and Sunshine needs a nice big redevelopment, and it has done for awhile now. It is an easy commute to the city and that whole corridor could do with revamping.
DxdrewParticipant@xdrewJoin Date: 2010Post Count: 479
Developers will tend to pick the effective points in the market relying on ongoing trends.
An example .. Doncaster has proved popular with the creation of multi-unit sites … so the trend there is being extended to surrounding suburbs such as Templestowe and Mitcham. Developers are now taking that risk.
However .. you must remember that Manningham as such has four major shopping centres and some of the best retailing in Melbourne. Really .. thats what has solidified the attraction of Doncaster .. the sheer convenience of good shopping and commercial facilities.
Mitcham now looms large as a good shopping area (not GREAT) with easy transportation and .. being close to all Doncaster's facilities. And they are building OTP there. Now .. as i said .. for the previously stated reasons I loathe OTP. However .. the trendline to building major apartment blocks will bring a life not even calculated yet .. into the Mitcham area as the apartments bring increased street traffic to what was a 'quiet' area. How that all plans out .. is the only real gamble you take.
Please note .. i'm not making any recommendations .. just observations based on previous longer term trends. In that same breath .. Ringwood .. just down the road .. is taking a battering .. largely due to the loss of the car yards up and down the highway and the traffic diversion to Eastlink. Can it revive? Is that a gamble worth taking?
My observation .. and your investigation.