[Melb] investment in inner city studio

[Bluegem]

i have been checking out units in the CBD of melbourne and you can pick up a studio apartment/one bedroom in the heart of the CBD for Low 100,000's.

I think its a pretty good deal. I have never done somehting like this. Im 21 and already have in principal approval for 100,000 - $130,000 (Thats all i asked for) but im just worried about potential downsides.

Im not expecting any capital gains. Just good cahsflow. Is negative gearing worth even thinking about?

Anyone care to share some experieces?

 

[buzzlightyear]

Bluegem,

These premises are usually quite small (30-50square metres), which means most banks require a significantly higher deposit. Most pre-loan approvals have many conditions, which IMO, make them of less use than what the banks make out. Its more good markeing for them as opposed to something of real value as a property investor.

As for cashflow, these premises (either student apartments or hotel suites) are usually accompanied by some sort of rental guarantee for a fixed period. You would need to be confortable about what sort of return you could receive after this period. It is not uncommon for you to 'pay' for this rental guarantee by paying for it in the purchase price. You would also need to understand management fees and other costs

I am somewhat concerned about your comment regarding no expectation of capital gain. If that is the case, there may be other investment options which achieve your cashflow objectives more efficiently.

Do you have any specific examples for us to comment on?

 

[geoffw]

There are some areas where inner city apartments have fallen in value, or have had long vacancies. I'm not familiar with Melbourne, but be careful. For instance, there were stories that Docklands units may take a while before they gain in value.

 

[Bluegem]

There are some areas where inner city apartments have fallen in value, or have had long vacancies. I'm not familiar with Melbourne, but be careful. For instance, there were stories that Docklands units may take a while before they gain in value.

I would never buy a unit at the docklands as they have just put in thousands and the price has plumeted as you suggested. Most of the ones i have looked at are IN the cbd opposite UNI's etc

Well, realistically I have around $120,000 to invest and these seem to offer great rental returns compared to something in the outer suburbs. Im not expecting some capital gain but obviously it would be nice. I basically just want to get some cashflow going and then use the equity in my first property to buy another one in the future. Possibly the second one near a beach somewhere and hopefully get some capital gain from THAT one.

 

[Michael Yardney]

Vacancy rates in the inner city are still high and there will be 2,600 new apartments completed in the inner Melbourne region between now and September 2006.

This will depress values and rentals.

You could probably find a better place to invest

 

[Bluegem]

Vacancy rates in the inner city are still high and there will be 2,600 new apartments completed in the inner Melbourne region between now and September 2006.

This will depress values and rentals.

You could probably find a better place to invest

What/Where would you recommend?

 

[JIT]

Bluegem,

My suggestion would be to try a search on this topic "studios/student apartments" on this forum, also there should be an article on this on domain.com.au.

This type of investment to me raises a lot of red flags.

There are as cheap as you can get, and so think about why this may be.

To find a good one, even close to Unis, eg, RMIT and Melbourne Uni. (Swanston Street), would be tough. Good investment apartments in this area would be at least double this value. With the type of property and at the price level you are suggesting, regardless of cash flow, I think you stand to potentially lose a significant amount of equity - especially at the current phase of the property cycle. This is a big risk.

Personally, I would steer well clear of this type of investment.

Ultimately, it depends on your financial position and what you can afford.

Regards,

GSJ

 

[Bluegem]

Im going to take your advice i think guys and look elsewhere.

I have found a rural property that looks very promising so i will look into that some more.

If the figures stack up do you think it to be wise to make an offer without seeing the house?
obviously pending building inspection/pest inspection/finance

Many people on these forums (from reading posts) havnt seen some of their properties. Since this is my first home (still living at home with parents) then perhaps it would be a good idea to see it?

 

[Jamie]

Hi Bluegem,

Youve received some great advice so far, so congrats for getting started and listening to the advice youve been given.

Seeing youre so receptive to advice , I have a little more for you:

THERE IS NO NEED TO RUSH!

Youve just joined the forum, so Im assuming you have just started looking into property as an investment (if Im wrong, please correct me )

Youre just starting out, youre still at home, youve probably just started working so might not have the best serviceability, youre jumping between inner city and rural properties - my advice would be simply to keep learning.

Youre not going to miss the boat - the boom is over, and its become a lot harder to make money in property. If you are just starting out, then you would be much better served by spending the next 6-12 months learning everything you can about property - which areas to buy in, what sort of property to buy, tenant selection, value adding, finance, creative techniques etc etc.

There is no reason you need to buy something NOW. I know its easy to get caught up in the euphoria of the property market and investing in general, but for everything there is a time and place...

The fact that you have approval to spend 100k+ on a property does not necessarily mean that buying a property is the best move for you to make.

I hope you dont take any offence from this - its simply my take based on the information youve given so far.

MY only advice is to spend the next 6 or 12 months educating yourself, so that when you ARE ready to take the plunge, you wont need to ask for advice

All the best,

Jamie.

 

[Bluegem]

Hi Jamie,

Thanks for the advice.

I am 21 so have been working for a few years now on a decent income. I have no commitments (girlfriend, rent, personal loans etc) so i believe i am in a very good position to invest in some property.

I have been looking at inncer city apartments for over 2 months now and have noticed a few trends, traps and have learnt a heck of a lot about the property market in general. I didnt even know what the body corp. was before i started looking at places.

I read here the best advice i have ever read.

1. The deal of the decade comes every week
2. A fool and his money are soon parted

 

[House_Keeper]

Vacancy rates in the inner city are still high and there will be 2,600 new apartments completed in the inner Melbourne region between now and September 2006.

This will depress values and rentals.

You could probably find a better place to invest

Michael,

Could you please be a bit more specific.

Aren't most of these new appartments in the docklands?

How does 2,600 compare with the recent past? Last year, wasn't there about 4,000 apartments completed in the inner Melbourne region, which were absorbed by the market?

Cheers,

 

[The Y-man]

i have been checking out units in the CBD of melbourne and you can pick up a studio apartment/one bedroom in the heart of the CBD for Low 100,000's.

I think its a pretty good deal. I have never done somehting like this. Im 21 and already have in principal approval for 100,000 - $130,000 (Thats all i asked for) but im just worried about potential downsides.

Im not expecting any capital gains. Just good cahsflow. Is negative gearing worth even thinking about?

Anyone care to share some experieces?

Have had issues getting loans for CBD apartments - as most are not classed as Residential Zones. They are generally CBD Zone 1/2, which is treated similar to a commercial/mixed business zoning.

If you are working and are paying tax, it may be beneficial to consider a larger loan and buying something larger in transport Zone 1 - eg a 2 bedder in locations such as Prahran. These offer slightly better cashflows than houses.

Cheers,

The Y-man

 

[JIT]

Slow down!

Bluegem,

I echo Jamie's thoughts too.

Seriously, slow down!

You're going from buying central CBD studios to unseen rural properties - active research in the market as you've been doing the last 2 months is good, but it needs to be backed up with some theoretical knowledge, or reading about property investment in general, through forums, but also books.

At 100K, with a studio you'll probably need a huge deposit, so you may be better off leveraging in the sharemarket with a margin loan.

Be careful!

Regards,

GSJ

 

[Natalia]

Hi,

I tried to talk to my lender about a City appartment. THey said that they can only lend 60% and if the apartment is a serviced appartment, then they will NOT finance it at all.

I think there is a clear message in their view about CBD appartments. They must have done all the homework to comeup with such view. So I have decided to stay clear of CBD appartments (although for ppl like me life seems to be in CBD).
Anyway, then I thought to look at CBD fringe appartments, but am not sure.

 

[House_Keeper]

Hi,

I tried to talk to my lender about a City appartment. THey said that they can only lend 60% and if the apartment is a serviced appartment, then they will NOT finance it at all.

I think there is a clear message in their view about CBD appartments. They must have done all the homework to comeup with such view. So I have decided to stay clear of CBD appartments (although for ppl like me life seems to be in CBD).
Anyway, then I thought to look at CBD fringe appartments, but am not sure.

All lenders have different criterias as to why they wish to avoid a particular area. Sometimes, it is simply because they already have a lot of lending in a particular postcode and do not want to increase their exposure. You might want to talk to a few lenders to assess what is the general attitude towards CBD appartments.

Cheers,

 

[Michael Yardney]

Michael,

Could you please be a bit more specific.

Aren't most of these new appartments in the docklands?

How does 2,600 compare with the recent past? Last year, wasn't there about 4,000 apartments completed in the inner Melbourne region, which were absorbed by the market?

Cheers,

Hi Housekeper

Some of these new apartmnets are in 2 large new towers in Southbank (Eureka and Freshwater Place) somein Doclkands and some in the CBD.

The problem this time around is that many are unsold and of those that are sold many will come back on the market becuas ethe purchasers will not want to or be able to settle. This is already happening and the price of these apartments coming on the secondary market are pulling down the prices the developers can achieve on their remaining new stock..... and the cycle goes on.

Developers are now offering "incentives" for people to buy their apartments
such as furntiture packages or no body corporate fees.

Also the vacancy rate in the inner city and Docklands is about double Melbourne in general.

To be fair most of the above dwellings are not central CBD studios as Bluegum mentioned.

 

[House_Keeper]

Thanks for the clarification Michael !