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From: Greg C


Hello all - please treat me gently as this is my first time !!!!!!!!

Looking for peoples
1. opinions
2. experiences
with advantages & disadvantages of Studio apartments in Sydney's East mainly Paddington , Potts Point, Elizabeth Bay , Bondi

I have a freind who is in the Real Estate game in the east & he claims Studios are a good investment - "because lots of young people like to live by themselves in the areas mentioned above, & they usually have high disposable incomes & are prepared to pay premium prices on a commodity (he claims) is in high demand".
Now - as he does list Studios in his business from time to time and the fact that he IS a real estate agent I'm wondering if what he says is 110% the truth ????????????
if you get my drift ??????

Studios do appear generally to have a high rental yields compared to say a 2 bed unit (older style)& in this low interest rate enviroment could ALMOST be positively geared.
I am looking at buying ones that may need cosmetic upgrades inc new Kitchen as a way of increasing rent & reaching the goal of a positively geared investment.

I am looking at "buy and hold" strategy over at least 8 - 15 years

Do they have the same capital appreciation as 1 & 2 bed units?
please throw your comments at me
Thankyou
Retire at 50
 
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Reply: 1
From: GoAnna !


I know next to nothing about the Sydney property market but what i do know is that Peter Span claims to have made his fortune buying apartments like that in Sydney.

There is an article on in the Australian Property Investor Magazine - I think the last one.

One thing to beware of with apartments is that under a certain size they are harder to finance - and probably harder to sell too. Is that correct Rolf?

GoAnna !
(aka Anna before she got real)
 
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Reply: 1.1
From: Cathy Whitfort


I have done Peter Spann's course and he talks about 1 bedroom units not studios (presuming studios are only one room as compared to one bedroom). I think he says to make sure they are at least 5 squares because of financing.

Cathy
 
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Reply: 1.1.1
From: Donna Larcos


I bought a studio in "Tara" in Potts Point in
1994 for $100,000 in late 1994. Spent
$20,000 doing it up and was getting
about 8% down to about 7.1% now the
new lustre has worn off. No trouble
renting. 1 weeks vacancy in six years.
Growth is somewhat slower than 1-2
bedrooms (about 4-5%). It's not what you
would call a wild ride. Another thing to
watch in Potts Point is make sure
building is in compliance with current fire
code. Upgrading can cost $3000 per unit.
Also, many of the units are older style
which is fine but you don't get much in the
way of building depreciation.

Unit is worth about $165K now and is
about to break even in terms of cashflow.
I think a one bedroom is probably a better
bet but a studio is a low entry point to
Sydney if you want a low stress property.
Also be careful to do your homework on
the area. Huge differences from street to
street.
 
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Reply: 1.2
From: Rolf Latham


Hi Goanna

Yes you would be right, no Mortgage Insurance usually, and loan to valuation ratios of 70 to 80 %. This means cashed up investors are great for these investments. Usually means the great yield is diluted because the ROI (return on the money you have put in is less because you have had to tip in 20 to 30 % and not 5 %)

If you need a 5 or 10 % down loan, then it will be hard yards - but everything is on a case by case basis

Rolf
 
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Reply: 1.2.1
From: Greg C


Thanks for your replies

Rolf, assuming i had substantial collateral in my semi in the east, the 70-80% Lvr should not be a problem ?????

Cathy any idea what 5 squares is in square
metres ???

I gather the general rule of "the higher the rental yield the less ( generally) the capital appreciation" applies to Studios & my friend (the real estate agent)argument that they have a high yeild due to high demand is not exactly correct???

Greg - retire at 50
 
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Reply: 1.2.1.1
From: Ross E


HI Greg, 5 squares is 46.4 square
meters, very small and hard to sell.



RED
 
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Reply: 1.2.1.1.1
From: Yuch .


Yes, in general the studios have better return than most units and houses. And there are a lot of studios around in the inner city areas such as Potts Point, Surry Hills and also around Chatswood.

I was looking into studios in Potts Points and Artarmon last year. What I found is, most of the studios are very tiny - we are talking about between 20m2 to 50m2, and ventilation in those buildings is not very good. Also you'll find out that the studios in Potts Point and Surry Hills have better return that those in Artarmom. Reason being, most of the studios in Potts Point are rented out to tourists who are willing to pay more for short term accommodations. But then again, you have very high tenant turnover rate. (one of the reasons why banks are not very keen in lending up to 90%)

Also, those studios have extremely high strata levy. When you put the strata, sink funds and coucil rates into your equation, you'll find that your ROI drops dramatically.

I think Donna's studio is probably relatively big compare to the 20m2 I was looking at, so I'll assume that it would appreciate faster than the 20m2. (another reason why banks don't like lending for investing in studios)

And Greg, it's true that they have high demand thus high rental yield. But with a very small floor area, it will be harder and also will take longer to sell. As a result, you might not be able to sell it at a good price.

Disclaimer: The above is only Yuchun's personal opinion. You will still have to do your own research and seek professional advice.

Regards
yuchun
 
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Reply: 1.2.1.2
From: Rolf Latham


Hi Greg

Equity is always good to have, just do not squander it by cross collaterising. Set them up as diffrent self supprting loans

Ta

Rolf
 
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Reply: 1.2.1.2.1
From: Gee Cee Cee


Hi Rolf


Muchly agreed!

Otherwise the banks will want your B---s & all.

Gee Cee
 
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