1 Bedroom / 1 Bathroom Units

[Joel]

Hi,

I am just wondering what peoples thoughts were on 1/1 units. They seem to be littered around Perth built in the 70s/80s. As rental market is tight at the moment, finding tenants is not an issue but I am sure the vacancy rate will increase with time and am wondering who usually rents these.

Are they students, white collar workers, FIFO?

Thanks for your thoughts

Joel

 

[mrmonopoly]

Hi,

I am just wondering what peoples thoughts were on 1/1 units. They seem to be littered around Perth built in the 70s/80s. As rental market is tight at the moment, finding tenants is not an issue but I am sure the vacancy rate will increase with time and am wondering who usually rents these.

Are they students, white collar workers, FIFO?

Thanks for your thoughts

Joel

I'm not sure about the Perth market but generally speaking SOME one bedders can make excellent investments. I put my money where my mouth is this time last year on one in the inner west of Sydney and have seen a 10% increase in the capital value and a 15% increase on the rent return in what was been a relatively subdued market. Whilst the majority of growth was manufactured at the purchase stage, even at the asking price it would have seen 5% CG and this is based on a recent conservative valuers appraisal.

Fact is its a CF+ investment with huge upside. My point is that they can be great, although it really comes down to the local demographics and demands. You only need to look at inner Melbournes oversupplied apartment market to get the exact opposite.

As a general rule, they should be an absolute minimum 50sqm (for lending requirements and resale opportunity), in areas of high demand (i.e. low vacancy rates) and in close proximity to the CBD. Manhattanisation is occurring all over the world and a lot of people see these as a pied-a-terre so FIFO, students etc are just a part of your potential market.

I can assure you that many fellow SS'ers will not agree with my views, but I honestly feel the next decade will see the relative affordability of units demonstrate growth on par with that of houses. Just my opinion though.

 

[tobe]

IMO there are one bed room units, and one bedroom units. try and find one with an internal entry (rather than a catwalk on the outside) security entry even better. Seperate kitchen and loungeroom, storage space a plus, try and find one where the bathroom door isnt off the bedroom. You wouldnt want to have friends over who had to walk through your bedroom to use the bathroom. Balcony and northfacing better again, make sure you know where the bins get stored and dont buy the apartment with the kitchen window facing the bin storage.

OSP is a must IMO.

 

[Aaron_C]

Well since you can't even get leverage over 80% for apartments in the CBD these days I would stay well clear of apartments unless you are doing it purely for lifestyle (like me). I can just foresee this being such a big price problem.

 

[The Y-man]

Hi,

I am just wondering what peoples thoughts were on 1/1 units. They seem to be littered around Perth built in the 70s/80s. As rental market is tight at the moment, finding tenants is not an issue but I am sure the vacancy rate will increase with time and am wondering who usually rents these.

Are they students, white collar workers, FIFO?

Thanks for your thoughts

Joel

We have 2 x 1BR in Melbourne (both vacant right now BTW!! )

Bother were occupied by working couples - DINKs

Type of tenants depends on their location - ours are close to CBD, transport, Unis, hospitals, eateries etc. -

The Y-man

 

[mrmonopoly]

Well since you can't even get leverage over 80% for apartments in the CBD these days I would stay well clear of apartments unless you are doing it purely for lifestyle (like me). I can just foresee this being such a big price problem.

Hi Aaron,

Are you just referring to the Melbourne market with the above comment?

 

[Aaron_C]

Hi Aaron,

Are you just referring to the Melbourne market with the above comment?

This applies to Sydney and Melbourne so it is not just limited to my State. It's a self-fulfilling prophecy too because it will kill the markets in these areas - maybe not overnight but certainly over a long period of time.

 

[mrmonopoly]

This applies to Sydney and Melbourne so it is not just limited to my State. It's a self-fulfilling prophecy too because it will kill the markets in these areas - maybe not overnight but certainly over a long period of time.

Thats very interesting, although I guess it depends on what is considered CBD. When did these restrictions come into play? Presumably it is attached to each banks view on risk in these areas? Strange because I thought it was LMI providers which were usually the difficult ones to please but looking at the likes of Genworths Security location guide below they seem pretty reasonable.

http://genworth.com.au/docs/lender-resource-centre/location-guide-australia.pdf

 

[Joel]

IMO there are one bed room units, and one bedroom units. try and find one with an internal entry (rather than a catwalk on the outside) security entry even better. Seperate kitchen and loungeroom, storage space a plus, try and find one where the bathroom door isnt off the bedroom. You wouldnt want to have friends over who had to walk through your bedroom to use the bathroom. Balcony and northfacing better again, make sure you know where the bins get stored and dont buy the apartment with the kitchen window facing the bin storage.

OSP is a must IMO.

Do these characteristics increase capital growth, make the property easier to resell, easier to rent out or all of the above?

Most 70s/80s units I've seen are external entry catwalk style with open plan kitchen and lounges. Also tend to have the bathroom access through the bedroom. Quite a few do have a secured entry though.

Alternative is to try to get a new unit which tends to have the features you listed but will cost more.

 

[tobe]

Yes, I think these characteristics make them a better investment. If all the property in an area didnt have a balcony, and yours did, or didnt have a carpark and yours did, then yours would probably rent first.

I didnt suggest new units, although there is no harm investigating them. All the older units in perth cant be catwalks can they?

Take a look at the floor plan from a renters perspective. If you had to walk past your neighbour to get to your front door each night, would you be happy?

Find something diferent to the norm, it might just be overlooking a park, or nice east facing living area, or a ground floor unit that has the potential to spruce up and 'subdivide' for a private courtyard subject to body corporate etc.

 

[Aaron_C]

Thats very interesting, although I guess it depends on what is considered CBD. When did these restrictions come into play? Presumably it is attached to each banks view on risk in these areas? Strange because I thought it was LMI providers which were usually the difficult ones to please but looking at the likes of Genworths Security location guide below they seem pretty reasonable.

http://genworth.com.au/docs/lender-resource-centre/location-guide-australia.pdf

Well for Melbourne, CBD is considered to be Melbourne (3000, 3004), Docklands (3008), Southbank (3006). Can't remember for Sydney but I think the suburbs were Sydney and North Sydney.

 

[Joel]

I was wondering what experience investors were on these little units. Definitely on the small side. Good things about the one I'm contemplating about is that it is a corner unit so has a side window where the dining table is.

It is the top floor and does not have secured internal entry secured parking. Car bays are actually uncovered.

Big plus I see is that it's near a train station and also close to a main road with bus services. Also walking distance to supermarket and other shops.

Realise there's many preferable features which are not satisfied, but is there any things which says run for the hills

 

[mrmonopoly]

I was wondering what experience investors were on these little units. Definitely on the small side. Good things about the one I'm contemplating about is that it is a corner unit so has a side window where the dining table is.

It is the top floor and does not have secured internal entry secured parking. Car bays are actually uncovered.

Big plus I see is that it's near a train station and also close to a main road with bus services. Also walking distance to supermarket and other shops.

Realise there's many preferable features which are not satisfied, but is there any things which says run for the hills

Nothing wrong with layout, although whats the total internal square metreage? Going by the numbers you have on the floor plan it looks way under 50sqm to be me. Meaning finance both for yourself and any future buyer will be difficult to come by at any reasonable level, which will seriously limit the resale opportunity and hence capital gain potential.

I'd recommend you check with a good broker on that point, theres plenty here on SS.

 

[Joel]

Thanks mrmonopoly. I did check with my broker and you are right about funding limitations. Maximum LVR will be 80%.

One view is that I could buy it at a buyer price as there is a limited market of buyers. But then I will be on the other side when trying to sell unless there is a relaxation in lending policy.

Do you know if this policy on small units has always been in place or is it a recent change after the GFC?

 

[Aaron_C]

The policy on small units has always been in place. Recently after the GFC the policy has extended to any property within Sydney/Melbourne CBD - regardless of size. Be careful.

 

[Bigtone]

my best ever investments were one bedders in darwin (nighcliff)

when rents are high one bedders tend to go very well in most areas.

these were easy to finance at 95% and were purchased for $64k (renting at $120pw) in 2003 and now worth $250k- $260k and renting for $275pw to $325pw.

so yes one bedroom units in the right area and the right type can be profitable

the older and smaller developments just outside of the perth cbd will be good investmenst long term i believe especially the one bedroom units

 

[Deltaberry]

Depends. Not sure about Perth.

As someone earlier said about Melbourne, close proximity to city (no actually, smack bang in the best spots in the city) and over 50sqm is probably needed to differentiate you from the rest of the garbage being built around Melbourne.

 

[Jas]

Hey Joel,

I know some people who have fully furnished a one bedder and then rented it out shortterm to fly in fly out types, newly divorced, students and so on.

The rent was obviously higher as the place was fully furnished.

Jas

 

[tobe]

prior to GFC lending to smaller units was a lot easier. At least a couple of lenders made the distinction between studio and having a seperate bedroom, regardless of internal living area, and for the right customer it was possible to finance smaller units to 97%LVR.

after the GFC many lenders DUA was revoked by LMI, which meant a lot of smaller units got caught up when put in front of the mortgage insurer. It has certainly tightened up a lot since with most lenders specifically defining their minimum area requirements.

As an aside, its not just apartments, I have a one bedroom miners cottage on about an acre in a small country town that the valuer measured at 49.5 sqms internal living. In my case I was able to get the assessor to see reason, but it wouldnt bode well for a potential purchaser trying to do it at a 97% lend.

 

[Aaron_C]

As an aside, its not just apartments, I have a one bedroom miners cottage on about an acre in a small country town that the valuer measured at 49.5 sqms internal living. In my case I was able to get the assessor to see reason, but it wouldnt bode well for a potential purchaser trying to do it at a 97% lend.

Add a cubby house for the extra 0.50 sqm?