Over the last thirteen years as a buyer’s advocate the most common request we’ve heard is, “I want a two bedroom apartment between $500 and $550,0000″. When I hear that I feel like responding with “would you like fries with that?”
Whatever this style of purchase used to offer for investors, it’s not best decision for today.
We own an older style two bedroom apartment in St Kilda Road backing on to Fawkner Park. When we bought the property in 1998 we thought this would set us up for life. Great apartment, great block, great location and so close to many lifestyle attractions I can’t begin to mention them all.
We paid $166,500 twenty years ago. Another one just sold in the block unrenovated for $508,000. Ours is renovated so we’d be lucky to get $550,000. There’s a lesson in that!
Is the purchase for you or your advocate?
If a buyer’s advocate recommends you buy a two bedroom apartment for investment you should think about whether they have your best interests in mind.
They could just be chasing a quick sale close to their office, so they can add the property to their rent roll. You need to be confident they are genuinely interested in helping you to make a wise investment property decision that will create wealth for your family’s future. They should not be recommending a property because it’s an easy and convenient sale for them.
1. Townhouses for capital growth
In 2006 we dramatically reduced the number of apartments we purchased for clients. We started to focus on three bedroom two bathrooms with off-street parking on the property and a courtyard.
One example is a property 18/1 Colebrook Street Brunswick purchased for $725,000 in 2015 with an identical property at number 10 in the block selling in September 2017 for $975,000.
This is a dramatic difference in capital growth compared to a very well-priced older style apartment.
Yes, this means a higher entry cost, but the overall running costs are far less than for an apartment. Rent is significantly higher, owners corporation and maintenance costs are far less and often there are significant depreciation benefits available for these younger properties.
Townhouses feel more like a house but at a much more affordable price. You can buy them much closer to the CBD which means they’re closer to more valuable and better infrastructure. They’re also a very attractive proposition for young busy professional home owners, renters or older retirees who want to travel.
2. Bright lights, big city
The CBD in any major capital city is always going to be the principal driver of capital growth and rents. The closer you can get to the CBD, provided it’s not an apartment, the better the growth in capital gains and rental return you will achieve.
One of our aims when buying for investors is to buy their investment property as close to the CBD as we possibly can.
As a rule of thumb, we find that the closer to the CBD the property is located the faster they lease, and the better quality the tenants. Competition is strong for these rental properties and often we receive several applications and many above the asking rent.
3. Don’t buy new
It’s exactly like driving your new car out of the showroom. Boom! There goes 20% of the value.
We try to purchase for clients when the property is around five years of age. This is when price volatility starts to level out and the property starts to trend back to market value, aligning with other similar properties in the surrounding areas.
Five years old is also an ideal buying age to see if there are any building rectification works to be completed. At this age, the fixes can be completed under the builder’s warranty or have already been completed.
If you buy a property at seven or eight years of age the risk is higher that you’ll be stuck with any building problems that might exist, for example if the previous property manager has not performed as well as they should have or is not aware of how to resolve issues through the right channels.
We purchased a five year old townhouse in Brunswick for $681,000. Like clockwork, within three months the values took off and two identical properties in the block sold for $770,000 and $780,000. Within another few months we had a leaking shower and a leaking balcony. The builder rectified both issues at no charge to us and they are insured again for another seven years.
…
IPB have helped hundreds of investors over the last thirteen years to grow their wealth through making wise investment property decisions. Contact Justin now for help with a property purchase that sets you up for success.
