Units Under 50 SQM - Affordable Investments

[Alex P Keaton]

What if you can only afford below 50 sqm? I think you can still do well if you buy <50 sqm. I'm getting a nice rental yeild for my 1960's 48 sqm Highgate studio unit and CG I think will be reasonable.

The issue is though you need a 20% deposit!? Is this always the case!? Do you always have to have a 20% deposit when buying a unit below 50 sqm?

When I bought my 2nd property my 41 sqm Dianella unit ANZ wanted a 20% deposit. So my LVR couldn't go higher than 80%. I wish there was someway around this because I dont want to have to keep coughing up 20% deposits each time. But if these are the only properties I can afford then I have no choice but to. Maybe that is not such a bad thing in a way as I have a bit of buffer there as its a bit more conservative.

Is there any way around this? I know I could invest further out but I like to invest between 3 - 8 km from the cbd. Is it really such a bad thing to invest in below 50 sqm ? I know some investors here have done well investing in below 50 sqm. I'd like to hear your stories.

Also I have been reading a lot lately about how the population is changing and there is a lot more living on their own. There is also a need for more affordable housing and some tenants can only afford a small unit to live in. Especially if wanting to live in the inner city areas.

 

[Aaron_C]

Unfortunately this is mortgage insurer policy. Until they change their rules we are stuck with this 80% limitation. Although, if you do borrow money for the 20% deposit you are effectively borrowing more than 80% of the property anyway.

 

[Alex P Keaton]

Although, if you do borrow money for the 20% deposit you are effectively borrowing more than 80% of the property anyway.

I'm not sure what you mean? Are you talking about the added costs such as stamp duty?

 

[Rolf Latham]

What if you can only afford below 50 sqm? I think you can still do well if you buy <50 sqm. I'm getting a nice rental yeild for my 1960's 48 sqm Highgate studio unit and CG I think will be reasonable.

The issue is though you need a 20% deposit!? Is this always the case!? Do you always have to have a 20% deposit when buying a unit below 50 sqm?

When I bought my 2nd property my 41 sqm Dianella unit ANZ wanted a 20% deposit. So my LVR couldn't go higher than 80%. I wish there was someway around this because I dont want to have to keep coughing up 20% deposits each time. But if these are the only properties I can afford then I have no choice but to. Maybe that is not such a bad thing in a way as I have a bit of buffer there as its a bit more conservative.

Is there any way around this? I know I could invest further out but I like to invest between 3 - 8 km from the cbd. Is it really such a bad thing to invest in below 50 sqm ? I know some investors here have done well investing in below 50 sqm. I'd like to hear your stories.

Also I have been reading a lot lately about how the population is changing and there is a lot more living on their own. There is also a need for more affordable housing and some tenants can only afford a small unit to live in. Especially if wanting to live in the inner city areas.

There are lenders that will do higher lvr case by case.

But the primary issue with these things is that until mainstream funding is normal, the restricted buyer profile may mean lower cap gain.

Those folks that believe that cg is mainly due to easy credit would argue that the hardee credit profiles should mean much lower cap gain.

I'm not 100 % sure this is quite right, but has a bit of reality in it

Ta

Rolf

 

[Aaron_C]

I'm not sure what you mean? Are you talking about the added costs such as stamp duty?

As in if you buy the property for $300,000 and need the $60,000 deposit + stamp duty, if you borrow this money from another property/loan then it is basically borrowing the entire purchase price of the new property.

 

[Ocean Architect]

As far as I am aware, some banks have minimum sizes for new constructions of small apartments/bedsitters. I had a convo about just this very thing the other day and one of the big 4 apparently has a minimum size of 61m.

I always thought that this had to do with replacement cost ie large properties that are expensive to build at least have large land components and construction costs which hence mitigate some risk in price fluctuation due to speculation, whereas this isn't true for bedsits.

 

[Alex P Keaton]

There are lenders that will do higher lvr case by case.

But the primary issue with these things is that until mainstream funding is normal, the restricted buyer profile may mean lower cap gain.

Those folks that believe that cg is mainly due to easy credit would argue that the hardee credit profiles should mean much lower cap gain.

I'm not 100 % sure this is quite right, but has a bit of reality in it

Ta

Rolf

Ah ok thanks

.........

 

[Alex P Keaton]

As in if you buy the property for $300,000 and need the $60,000 deposit + stamp duty, if you borrow this money from another property/loan then it is basically borrowing the entire purchase price of the new property.

Oh I see

...

 

[Peter_Tersteeg]

Personally I'd be avoiding properties below 50sqm. It is possible to get an LVR of greater than 80% but as indicated it's on a case by case basis. You're also restricting your choice of lenders which may affect your strategy later.

You've also got to ask yourself if they're actually a good investment. When banks are reluctant to lend against a particular type of asset, you've got to ask yourself what kind of risk you're taking. Many people will describe themselves as 'risk adverse', then borrow at > 80% LVR and do all manner of things that suggest the contrary.

 

[barney8]

I did just this, but I got the property at a very good price, it came with a LUG and a balcony and was within 5kms of Sydney CBD.(genuine 1 bed not a studio).

Pretty sure I will realise a good capital gain out of it. Property of this nature is still very high in demand and can't see that changing.

Currently its cashflow positive.(this sort of stuff should be pretty early on after investment).

When I bought, I could have got up to an LVR of 95% (2007), so yes I have probably been stung a bit by this new rule limiting the number of buyers.(needing bigger deposits).

 

[vaughan]

Every time I see a place heavily discounted, and am tempted to buy it I stop and think "Will it me ME heavily discounting the next time it's for sale?"

If it's discounted because it needs a reno: great.

If it's discounted because nobody will touch it because of something that cannot be easily changed (like: location, structural issues, easements) then: not so great.