Does an apartment make a good investment property?
An apartment can make an attractive investment opportunity if you are seeking maximum rental income with minimal expenses for upkeep.
When searching for an investment property you’ll need to consider a range of factors such as capital growth expectations and potential income the property can generate along with the location, facilities and nearby amenities. An apartment can make an attractive investment opportunity if you are seeking maximum rental income with minimal expenses for upkeep.
When compared to houses in high demand areas, apartments can make a sound investment as they are more affordable, which usually means a better rental yield. However, Marshall White Projects director, Mark Dayman points out that time is a key factor in return on investment. A longer term commitment will allow you to ride out any market fluctuations.
‘Buyers need to consider a medium to long term hold position of three to five years before it is worth significantly more than what they are paying today,’ says Mark.
Modern Australian households tend to place high value on location, resulting in a strong underlying demand for apartments in good locations. A major drawcard of apartment living is proximity to work for a shorter commute, access to amenities and less money spent on transport.
Purchasing in the right location is an important factor in how an investment performs. When assessing locations, note whether there are major infrastructure projects taking place that will improve the local economy, employment opportunities and lifestyle benefits. This will determine if the location will continue to appeal to tenants and potential owner-occupiers if you decide to sell.
‘Be cautious in areas where there is a significant increase in off the plan apartments for sale. Proportionally there will be a higher amount of rental properties over the next six to 18 months as these buildings are completed. This means vacancy rates will extend and investors need to factor this in when making purchasing decisions,’ says Mark.
Carefully selecting an investment with minimal on going costs will lead to a larger return in revenue. Evaluate the owners corporation fees, which can vary widely. Medium to low density buildings tend to have much lower fees and additionally, they are more appealing to owner-occupiers as they generally offer better privacy and living quality, which is an important consideration in terms of resale value.
When assessing locations, note whether there are major infrastructure projects taking place that will improve the local economy, employment opportunities and lifestyle benefits.
Be vigilant in assessing the space and outlook of the apartment as this is something that cannot be changed. High priority should be placed on natural light, a convenient floorplan and interior proportions.
‘Investors need to be selective and find a balance. An additional five to ten square metres in size won’t impact on rental return but will impact on the day they eventually decide to sell,’ says Mark.
Purchasing an established apartment may require you to carry out some renovations to increase the appeal to prospective tenants, so you will need to decide if this is something you are willing to invest in. Buying off the plan offers significantly higher depreciation benefits and often presents a more appealing prospect to tenants.
‘The better a property presents, the better type of tenant you will get. There are tenants who love the idea of moving into an apartment that has never been lived in. The vacancy rate for off the plan is often significantly lower than for established apartments. The only note of caution is that when a building is completed there may be a number of competing properties offered for rent at the same time. Any investor would be wise to seek an initial term of 15 months to try and break that cycle,’ says Mark.
Advice from a variety of experts, such as a financial advisor, may assist in planning your overall investment strategy. An accountant who is familiar with property investment can explain relevant tax rules and help maximise any claims related to the investment property.
If you need any further assistance or have any questions, please contact our Marshall White Property Management Team who have an intimate knowledge of the market and will be able to assist in matching a property to your budget. For more information contact us on (03) 9822 8711.