Interest rates are low at the moment and the housing market is booming. Because of this, you may be thinking: Is it the right time to buy? What suburbs are set for big capital growth? And are apartments a good investment?
The great debate (in our opinion) of buying a house as an investment versus apartment investing has been an ongoing struggle for some time. While buying property should never be a rash decision, if you are financially ready, it may be a good time to look into purchasing an investment property as interest rates are currently at a historical low.
In this blog, we look at apartment investing and whether it’s a good idea, or whether you should consider a house or unit instead.
Apartment investing is popular since it’s often more affordable than investing in a house. Cost aside, there are many other benefits to investing in an apartment.
Due to the compact nature of apartments and lack of back or front yards, apartments require much less maintenance than other property types. In apartment blocks, body corporate fees are paid by tenants to look after the communal areas of the apartment building, such as stairwells, walkways and outdoor areas. This means everything is taken care of by an external company.
Increased Cash Flow
Renting out your apartment can provide you with cash flow from the rental income.
Many new apartment buildings, particularly in metropolitan areas, come with amenities available to the occupier, such as pools, gyms, spas, saunas, tennis courts, etc. If you were buying a house, you would need to purchase these things separately – or at least be a member of a club that provides them – which can add to your costs.
Inovayt Financial Advisor Melbourne Luke Mase says: “When it comes to rental yields, they generally fall in favour of apartments. The initial deposit, loan repayments and ongoing costs – such as council rates and insurance – for an apartment is much less than for a house that would attract similar rent.”
Unlike houses or townhouses, apartments are generally more secure than other types of property due to the layers of security in place to get you through to your front door. Things like key fobs in the lift to access your floor, security cameras in the complex and remote-controlled entrances to secure parking are all common features of apartment living.
Lower capital growth
Financial comparison site Canstar says houses usually offer greater long-term capital growth than apartments as land often appreciates over time and houses tend to have more land than apartments. This isn’t always the case and it depends on the location and quality of the apartment/house in question.
Depending on how many units are in your apartment block, there could be hundreds of people living in the same building. There is also a strong possibility that living in an apartment block will have you living right on top of your neighbours, with the potential to hear them through the walls and/or roof.
Lack of control
If your apartment is part of a strata title (body corporate), you need to get permission to make any changes or renovations to your property. This can be limiting should you wish to make changes.
For a lot of people, this may be an absolute deal-breaker. When investing in an apartment, some buildings may not allow pets so it is important to research this before you decide to purchase.
Units and apartments are popping up everywhere at the moment and will continue to in the future to keep up with Australia’s growing population. The increased development of properties and apartment buildings to satisfy the increasing population will lead to more supply and less competition within the rental market.
This isn’t always going to happen, however, whenever you rent out any property you own, you run the risk of having bad tenants living in your property. This is also possible when renting out a house, however, rent for apartments tends to be lower than houses which may attract younger people such as university students or people who may be struggling a little to make ends meet. Tenants may not pay their rent, damage your property or bring unwanted trouble into your life. Although this isn’t ideal, it is a good idea to set up a plan in case this happens.
Luke has a few more tips to keep in mind.
“When buying an apartment, understand what your ‘why’ is. Why are you doing this? Is it to get your foot in the market? Is it a stepping stone to achieving a longer-term goal? Is it to get a property in a certain suburb or school zone? Simply rushing to buy an apartment so you don’t experience ‘FOMO’ is not a smart investment.”
Who can I speak with about apartment investing?
While many of us often think houses are a better investment when it comes to buying property, this isn’t always the case. There are pros and cons to every type of investment but you need to choose which is best for you financially and in the long term.