Purchasing studio apartment Box Hill

[yc85]

Hi all,

I am about to purchase a studio apartment for about 200k. I would like to gain some wisdom from those of you who has been in the market for long period of time as to whether I should purchase it? It will be my first property so I am a bit anxious.

It is one bedroom and about one minute walk to train, tram shopping etc. It will be off the plan and settle in 2-3 years.

Any advice?

Regard YC.

 

[twobobsworth]

How about we turn it around and you tell us what makes it good?

 

[Trogdor]

I'd say that this sounds like a bad proposition.

 

[yc85]

There are 3 key reasons why I am choosing this over others.

First, it is off the plan and I can only purchase these property as I am still a student and has no income at least until end of next year.

Secondly, it is extremely convienant, as it is close to transport and shopping.

Thirdly, I think 200k is about the range which I can afford.

However there are two problem this it. First, the area is very small 20+ msq and secondly, it doesn't have carpark.

 

[Glucose]

I think you will have a great deal of trouble getting finance for a studio of only 20sqm as most lenders will only consider anything over 50sqm.
20sqm is VERY small - sounds about right for a small motel room, and 200k sounds too much for that. What sort of rent is it likely to get?
Just because 200k is about the range you can afford doesn't mean that THIS property is worth that much.

 

[yc85]

I think you will have a great deal of trouble getting finance for a studio of only 20sqm as most lenders will only consider anything over 50sqm.
20sqm is VERY small - sounds about right for a small motel room, and 200k sounds too much for that. What sort of rent is it likely to get?
Just because 200k is about the range you can afford doesn't mean that THIS property is worth that much.

The rent been quoted is about 248 per week and guaranteed for 1 year, realistically I expect it to be around 200 mark.

I agree that 20sqm is very small, and that is the most worrying part, the real main reason to purchase this property is that I don't have to pay until 2-3 years down the track. Hopefully by than the price will have gone up a bit.

 

[Kristine..]

Hi yc85

Welcome to the Forum!

There is nothing wrong with studio apartments as such, but there are a number of factors which you should consider:

The property you are considering has a ‘rental guarantee’. Does this mean that it is Student Accommodation? The lack of car parking would indicate this as overseas students (the target market) rarely, if ever, have cars.

If so, lenders treat this type of property as a Commercial deal, and the most you pay be able to borrow would be 65%.

This would mean you would have to contribute 35% ($70,000) plus stamp duties and costs. Can you afford to do this?

Student Accommodation cannot be rented on the open market. It can only be rented to registered students. This can severely limit your capacity to rent it and if the management company is not efficient, could leave you with ongoing vacancies. Could you afford that?

If it is not a student accommodation arrangement, then 20 square metres is not going to appeal to many people, if at all. 20 square metres is a bed-sitter, not even a studio, and would rarely appeal to anyone wanting permanent accommodation.

For $200,000 you would be able to buy a standard flat capable of being rented to a broader market than just to students. As you are not earning an income right now, it would be somewhat perilous to enter into a binding contract for two to three years ahead.

Having said that, my son bought a student apartment off the plan when he was 16 & half. The building was not completed until he was 18 & four months, but in that time he had saved very little extra money and his earning were still negligible. We managed to structure a deal but it involved using the family home as equity. Would you have a similar back up plan?

It is important to be enthusiastic but it is more important to be practical. Student apartments and serviced apartments are more for the Claytons investor – they are the property investment you make when you don’t want to be a landlord. They involve large amounts of cash and / or equity and while there is the promise of continuing income, and capital growth will generally happen as with almost anything to do with property, they can be the devil to finance and take a considerable time to sell should you ever want to do that.

You may care to cut your teeth on the research for this one, but from the somewhat sketchy reasons you have given, it may not be the most appropriate investment for you at this time.

Cheers

Kristine

 

[Trogdor]

I would hate to think how much of that rental guarantee is capitalised into the purchase price.
Studios are a bad idea in general, perhaps at a stretch in the CBD or inner areas. Box Hill is very far out and I'd be surprised if you couldnt buy a proper 1 bed or even 2 bed older style for not too much more.

Have a think about the market for re-sale. You are only keen for it now due to rental guarantee and long settlement. That will be gone, and couples, families, etc.. will not want to buy this from you. Singles also wouldnt want to buy it, as compared to a proper (50m sq. + unit) - as wont many investors, so you are left with something which will perform under market, and will be hard to get finance for.

Why not save for longer and buy a proper unit, or look at LPTs (or shares)?

 

[yc85]

Thanks for all the consideration and advice Kristine

If so, lenders treat this type of property as a Commercial deal, and the most you pay be able to borrow would be 65%.

This would mean you would have to contribute 35% ($70,000) plus stamp duties and costs. Can you afford to do this?

My family are willing to support me and will act as back up if anything regarding the loan does go wrong. But thanks for the heads up.

If it is not a student accommodation arrangement, then 20 square metres is not going to appeal to many people, if at all. 20 square metres is a bed-sitter, not even a studio, and would rarely appeal to anyone wanting permanent accommodation.

I totally agree and I am rethinking about the whole investment as obviously there are much better options around. What really appealed to me was the location but it looks like the preimum is too much.

Student Accommodation cannot be rented on the open market. It can only be rented to registered students. This can severely limit your capacity to rent it and if the management company is not efficient, could leave you with ongoing vacancies.

I had no idea about this, why can't it be rented on the open market? Is there certain regulation regarding it? or is it just difficult to find students generally?

Having said that, my son bought a student apartment off the plan when he was 16 & half. The building was not completed until he was 18 & four months, but in that time he had saved very little extra money and his earning were still negligible. We managed to structure a deal but it involved using the family home as equity.

Just out of interest, how was the whole thing done? I am considering purchasing open market properties probably with help from my parents using their home as equity. Therefore I will probably need alternative finance. PM me if it is easier.

Cheers

 

[Kristine..]

Hi yc85

Student accommodation is a 'permitted use' in the planning scheme.

Therefore, only 'students' are allowed to occupy the building. A strong indication was the absence of car parking facilities. To the best of my knowledge, the exemption to having to provide car spaces is because of the target market, primarily international students who are here on student visas, are not permitted to work, do not have cars, and who want accommodation as close to the campus as possible.

The complex No: 1 Son bought into has generally been managed OK, and he paid $71,250 including furniture and the apartments now tend to sell for about $180,000 (9 years) but the rents have been capped for three years due to competition – more flash accommodation has been built in the immediate area (by the same developer!!) and this has kept student rents in the area low, or so they say!

However, his apartment is a full sized apartment with a separate bedroom, full sized bathroom with laundry facilities, complete kitchen, living area and balcony, and fully furnished. At 50msq, definitely not a studio!

This may be the first property you have seriously considered, but that doesn't make it the best property for you. Keep looking, and if you still decide to buy at least you will know you have chosen to do so and that the purchase is not just a default purchase.

Cheers

Kristine

 

[yc85]

How did your son finance the loan? Was it through you been the guarantor? Is the whole thing complex?

I am considering doing the same with help from my parents.

 

[Twitch]

Hi & welcome yc85, Kristine has given you some good advice. I use to live very close to Box Hill and like it as a suburb, great transport, inexpensive resturants, shopping etc. However I don't like the sound of a 20sqm studio for all the reasons others have given you already.

I'd encourage you to do a bit more reading on this forum and consider where else you might be able to invest $200k.

good luck