What's your view on apartments?

[damien275x]

There are some cheap, small apartments in Melbourne that I've been eyeing off. $250k - $300k range.

Questions:
How many extra "fees" will there be per annum, like building management and all that jazz. Are they OK to live in?

Just turned 22 - and I've got $180k now. Did some risky investing that paid off. Well Silver just crashed 20% so maybe $160k, but should be a good enough deposit?? Was thinking of getting one to rent out for a bit and then live in. All I want is a bed, a shower, and a TV. I'm really busy with work and it's a pain in the *** to commute during the week. Are they worth it? Or too much hassle and annoyance in managing/renting out/maintaining.

I really hate debt and think it's disgusting so I would like to try and stay out of as much debt as I can. Especially since prices could crash.What are your thoughts on apartments, and what are the traps and pittfalls that are unforseen? Any reading you can point me to?

 

[Belbo]

Okay, you want to take your dough out of the market, buy a small apartment close to town to live in and possibly rent out at some point, minimise the use of debt as much as possible, and do what exactly?

1. Work hard and save your way to wealth? Not likely, but stranger things have happened.

2. Get back into high-risk trading asap to get wealthy? Possible, but very few individuals appear to suceed (although you seem to have done astonishingly well being only 22).

3. Build a safe share portfolio? Easily done but generally very slow going (particularly given current sharemarket disarray), though not specifically requiring any use of debt.

3. Build a property portfolio? Easily done but generally still slow going all the same, and entirely dependent upon leveraging 'disgusting' debt.

4. Start your own tech-sector business and become a mega-millionaire when you sell it? Less easily done, and entirely dependent upon leveraging your own genius.

5. Win the Lotto (my brother's personal favourite).

Reading will help you choose which path is for you, undoubtedly. Read every and any 'how to build wealth' book available at your local bookshop until a suitable path reveals itself to you. Until then, you won't know whether an apartment is a suitable investment for you or not (but you will be able to estimate the likely holding costs within a nanosecond or two).

 

[units4me]

Pay VERY VERY close attention to how much the total body corp fees are, and buy/offer accordingly.
With apartments, these can be a real killer. Do your body corp searches also, to find out whether any issues ($$$) will be arising in future.
Remember also, it is very much a buyers market.

 

[Felixter]

1. DO NOT TOUCH STUDENT ACCOM OR SERVICED APARTMENTS LIKE QUEST UNDER ANY CIRCUMSTANCES. The best deals in inner city market are usually one of these. They look tempting because the yield is so good and the price is so cheap. Make sure you check first. If you want more detail on why these are a dud investment do a search because there are a few threads and it's explained in detail.

2. I'd also steer clear of studio apartments and anything under 50sqm.

3. Look for an older unit in small block of 8 or 12.

4. Spend $20k updating kitchen and bathroom. You can get Ikea kichens quite cheap and then put granite bench tops in.

5. If you have a $160k deposit and buy at $400k (360 buy price with 40 to cover stamp and costs and a new kitchen and bathroom) that means your loan is 240k. That's about $500pw repayments. Spend $300k with $140k loan and your payments will be closer to $250pw.

Work out how much you want to pay per week and then shop accordingly.

 

[Melbournian]

There are some cheap, small apartments in Melbourne that I've been eyeing off. $250k - $300k range.

Questions:
How many extra "fees" will there be per annum, like building management and all that jazz. Are they OK to live in?

Just turned 22 - and I've got $180k now. Did some risky investing that paid off. Well Silver just crashed 20% so maybe $160k, but should be a good enough deposit?? Was thinking of getting one to rent out for a bit and then live in. All I want is a bed, a shower, and a TV. I'm really busy with work and it's a pain in the *** to commute during the week. Are they worth it? Or too much hassle and annoyance in managing/renting out/maintaining.

I really hate debt and think it's disgusting so I would like to try and stay out of as much debt as I can. Especially since prices could crash.What are your thoughts on apartments, and what are the traps and pittfalls that are unforseen? Any reading you can point me to?

wouldn't buy any of those cheap small apartments. you would just lose money on those. would go for larger ones that are around 80sqm and above - do some comestic reno and hold for a couple of years.

 

[Felixter]

so maybe $160k, but should be a good enough deposit??

That's enough for 4 deposits.

Was thinking of getting one to rent out for a bit and then live in. All I want is a bed, a shower, and a TV. I'm really busy with work and it's a pain in the *** to commute during the week.

Don't bother renting it out, just live in it from the get go. Commuting is a pain in teh rrrrrr's.

Are they worth it? Or too much hassle and annoyance in managing/renting out/maintaining.

As a pure investment I wouldn't advise buying in Melbourne, but if this doubles as a place for you to live in so you don't have to commute then I endorse it. Select well (inner city, close to transport, older unit small block etc) and it will be hard to go wrong.

I really hate debt and think it's disgusting

You need to change this up. I'm not saying overnight, but over time you need to convince yourself that debt for appreciating assets is good.

Imagine this scenario:

Punter 1
- Has $160k in the bank
- Doesn't like debt so borrows $90k with the rational "I can pay of that disgsting debt in no time"
- So he's got an asset worth $250k

Punter 2
- Also has $160k in the bank
- Loves debt so puts down a $50k deposit on 3 units, each worth $250k. The other 10k he uses as buffer. The rental income from all properties is $35k pa and his loan is $600k. The shortfall is about $17k pa
- So he has assets worth $750k

In 10 years real estate prices double. Punter 1 has an asset worth $500k. Punter 2 has assets worth $1.5m even though it did cost $120k over that time to hold them.

I'm not saying you should do this now, particularly because the Melbourne market IMO won't grow enough in the short term, but you need to have this at the back of your mind as to help you understand how people leverage debt.

Go buy your unit but don't limit your debt because of time it takes to pay off, limit your debt to how much you can afford per week.

Especially since prices could crash.

Unlikely. Melbourne has shown a gradual slowdown that may well continue for a bit, or hold flat for a while. Unlikely to be a crash as such.

 

[Felixter]

Questions:
How many extra "fees" will there be per annum, like building management and all that jazz.

You need to check carefully but rules of thumb:

1. If the unit block has elevator or pool or gym then your body corp/strata fees sky rocket
2. Some are just a p1sstake anyway. Always check. I've seen some peole buy into unit blocks and not be able to sell because the strata fees are so high and turn everyone off.

That's why an older and smaller block that you can do a quick cosmetic reno is the go.

 

[citystar]

Damien,

When I was your age I also took an educated risk on stocks (mining stocks) that paid off. This gave me the initial deposit on my first investment property which I knew had to be a good purchase in order to continue to buy in the near future. I bought shared access to RPData in order to research properties in areas I knew had good fundamentals such as government spending on infrastructure, community development and growth. If you do a search on this forum you might still be able to find shared group access to either RPData or PriceFinder if that is something you would consider.

I focus on single bedroom apartments around 70 sq feet or greater in size within securely gated complexes. I don’t touch anything with lifts, gyms, indoor heated pools, movie theatres etc because these places tend to attract very high body corporate fees. People don’t mind walking up two or three levels of steps to get to their apartments, any more levels than three and people start to have issues.

To get into my first place I took advantage of the FHOB and stamp duty concession, living in the apartment for one year to satisfy the FHOB and the stamp duty exemption that was available at that time. After I moved out I quickly found a tenant within a week who was prepared to pay rent that my research considered at the market rate compared to what else was available in the area. I have been renting ever since in order to keep my living expenses low.

In my opinion you don’t have to be afraid of debt if it is good debt. An investment property is tax deductible so I avoid paying off the debt as much as possible with Interest Only loans tied into a 100% offset account (not a redraw account which is different). This maximises the amount of cash in bank for the next property. Combine this with an Income Tax Withholding Variation form and you maximise your cashflow even further. If you buy well, in the short term you should be able to draw equity out of the property and use that as the deposit on the next IP if that is something you are interested in.

I personally don’t have the time to manage all of my investment properties so I outsource this to local real estate agencies that I feel have good systems and procedures in place to look after my assets. I still spend time ‘managing’ my property managers to ensure my interests are always being maintained. Some people may read into this as a sign I do not trust my PM's. This isn't the case. Managing my PM's is for my own peace of mind and an extra step to ensure things are running smoothly.

 

[Don K]

Smaller block off main road would be preferred. I heard people in Docklands cannot sleep leaving windows open as people take turns in partying.

 

[Buzz]

Ok I can't hold my tongue. You are in the most amazing position for someone your age, to leverage your position and check out of the rat race early.

Please please please don't use your debt prejudice to blind you - there is good and bad debt. Understand this.

You have apparently a high risk tolerance I assume based on your 'gamble' comments. You need to educate yourself about debt. I think you might benefit from reading a book The 9 steps to Financial Freedom – Suze Orman

This books takes you step by step through the process of understanding where your debt issue come from - mostly if you are young and not tainted by your own bad investments then, it is watching your family fighting over money or bad debts and how they effected your family life.

Melbourne is going nowhere for a while, so take the time to sort through your debt thinking and then start looking at property investing as a business.

Your initial thoughts of units over houses based on affordability and future growth predictions in most capital cities I believe is on the mark, but as the others have said minimise your risk. There is 10,000 properties for sale in Melb at the moment and according to The Age 5000 are vacant - so if no-one wants to live there now you might have issues renting that property out in the future. Another topic for another time maybe.

I hope this helps
Jane Slack-Smith

 

[Aaron_C]

Smaller block off main road would be preferred. I heard people in Docklands cannot sleep leaving windows open as people take turns in partying.

Not to mention the noise from the gale-force winds

 

[Melbournian]

if i were you...just look for a fire sale place that you can pickup.

 

[eeew]

damien,

Inner melbourne has been off this yr, not surpising given the strong performance seen in end of 2009 and all of 2010. Corrections naturally happen after periods of strong growth. Heck, even gold tumbled very recently after its month after month bull run.

Whilst some people think that innercity apts in melb will continue to decline in value well into 2012, I disagree for the following 2 main reasons:

1. Interest rates will be cut at least 0.25% in either oct or nov. Prob 0.50% cut on the cards.
2. The $A will continue its decline [already started]. cut in rates will further decline in the A$ compared to the US$. The issues faced by europe and the US are so deep, that they are not going to be resolved anytime soon- we will still be talkign about it this time next year. This will keep rates low and the dollar low as well.

These 2 factors will result in the following 2 main drivers for capital growth:

1. Increased migration , mainly international professionals and students. The cheap $ will encourage them to do so. Plus, there are not many jobs in europe and US, so they will seek to come where the jobs are- Inner Melb and SYD are the top 2 regions in the country with jobs.

2. Banks will continue to tighten their belts in terms of large scale lending [ to developers primarilly]. This will deter developers from builing new apt blocks in inner city melb. [ banks will do this given tougher conditions for them to access money- given that everyone wants to hoard it- we saw this in 2008]. They will have to offer better deals to individual punters in terms of home loans to keep their businesses going strong. Individual punter lending is seen more sure bet rather than high-risk developer financing. This will entice more punters to enter the market.

All the above result in increased demand, which relates to increased prices [ both for rent and to purchase]. As long as your objectives are med-long term hold, you should be ok with innercity apt investing. Live in it or rent and i think you should be fine with either.

 

[arriety]

I have one of those service apartments which i purchased years ago before it was service apartments and then I signed that dreaded 15 year lease. Its one bed 60Sqm and while I've had quite good returns over the years, it will be impossible to sell until I am free of the lease (I'll probably die first!). Other apartments not tied to a lease get a slightly better rental yield (though cost more in maintenance and advertising etc) and sell for double what I could get.

My other small unit close to city in small older block gets great returns and is never empty and has quadrupled in price. I wish I'd bought 2 of those at the time.

 

[The Y-man]

There are some cheap, small apartments in Melbourne that I've been eyeing off. $250k - $300k range.

Hi Damien,

This will be around the $300k mark

http://www.realestate.com.au/property-apartment-vic-north+melbourne-107847786


I own one nearby very similar layout and age. Very rarely vacant.

You'll get $320 pw (net of management fees)
The owners corp is about $2k per year
You'll also need to factor in rates.



The Y-man