Pros / Cons of Buying a Block of Units

Michael.Knight

Michael.Knight

Jan Somers and many others advocate buying an average priced house, holding, refinancing, buy another house, repeat....

Well what if this process was fast-tracked by buying a block of units? Compared to an individual house bought one by one. The way I see it -

Pros... greater and more stable cashflow, greater appreciation potential, multi-millionaires (eg Nathan Birch, Peter Spann) have unit blocks as part of their portfolio.

Cons... more maintenance.

What are your thoughts and experiences on unit blocks?
 
If a block of units is to be part of a portfolio of IP's then it may work for you. If its going to be the only asset you hold, you are probably putting all of your eggs in the same basket, so to speak...

It is a good idea to diversify your holdings to smooth out your cashflows.

Boods
 
Some people argue against diversification. They say averaging things out is a bad thing if you are after strong returns.

Maybe it is a case of putting all your eggs in a great basket and taking good care of it.

I am sure I read that somewhere - Maybe Mr Spann himself?
 
Would it devalue the block if you bought them all and then rented all of them out? Isn't the usual thing that you want 80% to be owner occupied in order to keep prices moving up?
 
Simon said:
Some people argue against diversification. They say averaging things out is a bad thing if you are after strong returns.

Maybe it is a case of putting all your eggs in a great basket and taking good care of it.

I am sure I read that somewhere - Maybe Mr Spann himself?
Click to expand...

I think it was Buffett who said.............Put all your eggs in one basket and watch that basket like crazy. ;)

He also said..........Wide diversification is only required when investors do not understand what they are doing. :p


IMO it hurts not to diversify, however if one has done all the necessary due diligence, it meets the criteria of amenity, rentability, appeal, infrastructure, etc., etc., and the numbers stack up, there is nothing like full control over a multi-door asset in a high demand area, not out in the boonies.

That's where the hedge comes in that the landlord doesn't have to rush to fill it with any old Joe, as other income streams continue. The right tenant, or as right as one can get it in the resi arena :rolleyes: can be selected at leisure.

Also the PM is promptly informed if one of them turns into a ratbag. Better grounds for eviction and support for the tribunal as the wayward tenant(s) behaviour is detrimental to the remaining tenant's quiet enjoyment of tenure.

I like multi's for that reason. Yields are ostensibly better with units/apartments rather than houses. I am a fan of infill (subdividable) land associated with houses however owning a whole block in one line also provides value add opportunities to strata (if one wishes to dispose of them one by one) and reno. Also there is (or should be) economy of scale with PM fees.

If you wish to keep for long term (as I do), IMO do not strata; it only adds to your outgoings with no concomittant increase in rent.
 
Simon said:
Some people argue against diversification. They say averaging things out is a bad thing if you are after strong returns.

Maybe it is a case of putting all your eggs in a great basket and taking good care of it.

I am sure I read that somewhere - Maybe Mr Spann himself?
Click to expand...

Sure, that's one way of looking at it. It all boils down to ones attitude towards risk, being risk averse/taker etc...

If you are after strong returns, you had better be prepared for a significant level of risk over and above the risk free rate (whatever that is in the market that you are operating in)

Boods
 
depending on locn size and type, normal finance can be hard.

Forget lvrs > 80 for anything with more than 4 units, and very restricted lenders even at 80 % for 4 units on one title .

There are many a lender that will do them at 70 % commercially based, but few that will do 80 on resi terms

ta
rolf
 
buzzlightyear said:
Cons..............land tax............
Click to expand...

Of course, depends on location and land value, however this can be hedged by leaving in one line and not going for strata. Once they are stata'd they exponentially gain dis-proportional land value for each dwelling all in favour of the SRO. :(

Biggest of the Cons I see as Rolf pointed out is financing in this market. LVR's and loans terms should be clarified before purchase to save from nasty surprises. :cool:

Last I checked a few months ago, anything over three or four was at 70 % LVR with resi rates. More than a six pack in one line and rates encroach upon commercial. I could be mistaken, however that's what I was informed. The brokers could clarify.
 
Personally (if I had more dosh) I'd be buying an old decrepid house on a biggish block and building 3 townhouses.

In the absense of money, and living somewhere where there are virtually no units and plenty of vacant land, the next best thing is looking good - a duplex :)
 
a relative has lived off the income of a block of flats for decades . For that kind if money she'd be earning alot more if it was put into a managed business or commercial property . But it's a very safe investment overall . At times there are headaches, tenants who don't pay and make up stories for the tribunal , but overall it's been good .
 
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