Investing in apartments has been getting some bad press recently. Some say apartments don’t grow in value and that hassles with body corporate, expensive repair bills and poor build quality make them less than sound investments.
On the flipside, others say that apartments have higher rental yields and can show value growth comparable to houses if you buy well.
So, who’s right?
The Risks of Investing in Apartments
Since March 2000, 667,394 apartments have been built in Australia, according to the Australian Bureau of Statistics. This explosion of construction has caused an oversupply of certain types of apartments in certain areas. Such apartments are harder to tenant and may be vacant more often, meaning their value proposition may also stay the same or decrease over time.
Extra costs like exorbitant body corporate fees and any major repair bills can also make apartments a challenging proposition as an investment.
The Apartment Advantage
High quality apartments can be just as good an investment as houses and, in some ways, they may even be better:
- Apartments generally have higher rental yields than houses as compared to purchase price, which means their rental income will cover more of your mortgage. This is ideal for beginner investors and those with limited cashflow.
- Apartments are usually more affordable than houses. This is particularly true near the centre of large cities.
- If you buy in a good location, there may be more renter demand for your apartments.
Just like with houses, the key with to investing in apartments successfully is to choose the right property.
Not Just Any Apartment Will Do
Apartments in high rise developments with dozens or hundreds of units are usually at a higher risk of being oversupplied, particularly in Melbourne and Brisbane’s CBD areas. When you try to sell or rent such a property there may be several in the same complex on the market at the same time, which could drive down prices and rental returns.
Instead, go for something with character in a smaller development. Make sure it’s centrally located in a desirable inner-city suburb, within walking distance to all the things that renters and buyers love (cafes, schools, transport links etc). Get a solicitor or property management specialist to look over the body corporate agreement, and the building’s history of repairs to make sure you’re not in for any expensive surprises.
Take care when you’re purchasing, do your homework and get a little expert help and the right apartment can certainly make a great investment. As long as you choose carefully and keep the above tips in mind, you’ll be safe as houses.