There are certain considerations one must weigh up when investing in an apartment, according to a local mortgage broker.
Despite some gloom and doom penned on the apartment market, Andrew Rowlands of Mayfair Finance said there are ways to ensure you make use of the valuable ones on offer.
“An apartment is usually far cheaper than a traditional house. This is because the cost of buying a house includes the land value, and therefore has a higher entry price than a small apartment. And then there are the ongoing costs, which will be different for a house and an apartment,” Mr Rowlands said.
“With an investment apartment, you own the unit, but common areas will be shared with the other owners. This means that you will be a member of a body corporate scheme or something similar and you will be required to pay body corporate fees for repairs and maintenance of these common areas.
“Sharing the costs with the other owners means that you won’t have to pay them in full, unlike with a house where you shoulder all the costs. Council rates are also higher for houses, and they even require land taxes in some states. So, when you are paying smaller fees on a small investment apartment, the returns on your investment can potentially be higher.”
Here are some things to consider when looking to invest in an apartment, according to Mr Rowlands:
1. Research the location
Mr Rowlands said location is one of the most important factors to consider in choosing the right property for investment.
“Depending on your strategy, you would most likely want to invest in an apartment where demand is high. Small space apartments are usually in demand in locations where young professionals are, when you look at days on market for metropolitan dwellings,” he explained.
“Look at the city centre, employment hubs, universities and popular nightlife destinations, as well as areas where these places can be accessed via public transportation. Also consider what other properties are in the immediate area of the apartment, and of course, the level of security.”
Consider asking the following, Mr Rowlands said: What drives the local economy? Is there employment growth? Are there new developments in the area that may cause apartment oversupply? What is the historical growth of property prices in the area? What are the current rental yields on apartments? What is the median price of properties in the area?
2. Analyse market data
For investors, analysing the data available on each market will enable you to find a location where you can maximise the profit potential of your investment apartment.
According to Mr Rowlands, some indicators are a good location include: the number of days on the market or how quickly the properties sell in the area, vacancy rates or demand to supply ratio, the rental yield or the percentage of the property price you can collect in rent, auction clearance rates, and limited available property in the area.