Anyone own an apartment as a rental property?
What is a good return % and do you recommend having an apartment?
, Mar 14 2012 12:12 PM
11 replies to this topic
Posted 14 March 2012 - 12:12 PM
We are looking at an apartment in Adelaide city (very early stages) as an investment property. The return is around 7.9% gross, and 6 something percent net.
We are very new to investment properties and are not sure if this is a good return or not.
I look forward to your replies.
Posted 14 March 2012 - 12:22 PM
The return % alone isn't enough to make a call. My return is higher but i prefer a positively geared strategy which isn't for everyone. I also won't touch apartments/units/duplexes/town houses with a ten foot pole- again it's just a difference in how I like to invest.
The return % alone isn't going to tell you whether it's a good investment. I would also be looking at vacancy rates (If it's empty for months at a time you won't be getting that return!) and how I feel property values will grow over the coming years in that area. There are areas you can get a half decent return in but property values are so slow to rise you are unlikely to make much in the long run.
Also given you are restricted with apartments compared to houses how new is the apartment block? are there strata fees? will you be making improvements to the apartment and are these allowed?
Posted 14 March 2012 - 12:38 PM
7% is a good return. It almost seems too high for a city unit, given the current market.
But as PP said there are other considerations than the rental return.
I wonder about body corporate fees and if these have been factored in to the net yield. Some unit complexes can charge $3000 a quarter in fees.
I own a strata titled unitl with low body corp fees and it's a great investment. I steer well clear of complexes with pools, gyms, lifts and air con in common areas.
Posted 14 March 2012 - 04:14 PM
This apartment we are looking at is part of a serviced apartments group. So it is not long term stay. It is managed by a company. The net % is after strata, etc. The reason this apartment is attractive to us is that you get to stay in it, rent free for 14 days throughout the year, and as we live 1.5 hours out, this would be great for weddings, family holidays etc. Just a bonus I guess, but having never looked into this type of thing before, I am not sure where to start to find out if this is a good investment or not.
Thanks very much for your replies.
Posted 14 March 2012 - 05:07 PM
What are they basing their occupancy figures on and is this realistic?
Posted 16 March 2012 - 02:33 PM
Occupancy figures and return are added together for the whole building and then averaged and divided up for individual apartments, it is not based on a single apartment alone.
There are some other apartments for sale that guarantee a return (you sign for an agreed figure for 2 or so years) but these are about 20% more expensive for 2 bedroom apartment.
I guess we are just looking to get into the investment market, start small and see how we go.
Posted 16 March 2012 - 02:37 PM
These kinds of managed apartment complexes are invariably very poor investments for capital gain in the Brisbane market at leat.
Posted 16 March 2012 - 02:40 PM
Do you know why they are considered poor investments ellebelle? I figure if we can buy something, and someone else pays off 90-95% of it for us, we should be infront long term? But, I have no financial/investment background.
Posted 16 March 2012 - 02:44 PM
Just check with your bank as to whether or not they'll finance it.
In Melbourne, from anecdotal data (people trying to refinance these types of apartments from family law property settlements) the banks won't touch them unless you have at least 40% equity.
The market for them also had the bottom fall out of it recently. Many people lost tens of thousands of dollars.
I'd find a different type of apartment if I were you.
Posted 20 March 2012 - 02:18 PM
While you get good cashflow in some cases, there is little capital growth. In the worst case, you sign a management agreement where you are charged a fortune in miscellaneous amounts such as changing light bulbs and there's no capital gain and lousy net rent.
You can buy a 1bd unit in Teneriffe Brisbane, a very blue chip area for a gross retun of around 6% right now and capital gain is absolutely guaranteed. It's a no brainer!
Posted 20 March 2012 - 02:45 PM
I've not looked into managed service apartments to any great extent but the off the top of my head things to consider are:
- what capital growth are you looking for? managed units only interest a small niche part of the market so resale can be notoriously difficult. This is why many finance companies won't touch them
- who has calculated the claimed 7.9%? Is that your figures or what the marketing agent is purporting. Make sure you do your own due dilligience.
- what is your strategy for this property? Is it a buy and keep long term? how long? are you investing for income or negative gearing, or capital growth? this is tied in with the next question
- what is the depreciation schedule and has this been taken into account in the 7.9% return? How long is the depreciation lifespan?
- what's the resale turnover of older serviced apartments in the same area? do they sell easily? how many days on market and what is the capital growth for these (make sure you aren't comparing rates for apartments generally, again serviced apartments are niche)
- who is the target market for rentals? in Canberra for example, serviced apartments are highly susceptible to changes in govt policy as govt is the primary market. Is the market mainly business, if so which industries, or tourism, if so what is the seasonality. How long is occupancy guaranteed for? If the guarantee comes to an end and there's no demand, every owner will be trying to sell at the same time and the prices will fall through the floor
- what level of control do you have over the management of the property? If the managing agent goes bankrupt of fails to perform to standard, what options will you have?
- what are the current strata fees paying for? is there a sinking fund established? If they aren't investing in the property, it will quickly lose out on market share to the next set of new serviced apartments that the same company (or another company) builds nearby
Whether it is a good return or not completely depends on how it fits with your overall investment strategy. Also make sure you get very good legal advice on what you are actually signing up for with regards to the management arrangements and make sure you research things yourself - don't just rely on the marketing blurbs
Posted 20 March 2012 - 03:04 PM
we have one. Ours is a small complex, only 5 stories high and rented to a company that uses it as a serviced appartment. Im not sure off hand on the percentage, but it will be paying for itself within 4 years.
Is it a good investment? well Im not sure yet, but we really wanted to find one that we could live in down the track incase we got work in the city, or indeed just to stay in for trips to the city. We found A lot of the serviced apts were not available to use yourself and were parts of hotel's or student accomodation only.
My advice is to do your research and ask a lot of questions! Good luck
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