[Tulip :-)]

Hi,
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.

[Spring Chickadee]

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?

[BetteBoop]

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.

[Tulip :-)]

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.

[tothebeach]

What are they basing their occupancy figures on and is this realistic?

[Tulip :-)]

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.

[ellebelle]

These kinds of managed apartment complexes are invariably very poor investments for capital gain in the Brisbane market at leat.

[Tulip :-)]

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.

[Divvy]

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.

[ellebelle]

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!