Property investment strategies – How to pick a good investment unit or apartment

Are units or apartments good or bad for property investment? What factors should you consider when buying investment units or apartments?

Many people invest in apartments because they often have a cheaper buy-in price than houses and are also thought to be a lot easier to maintain without gardens to worry about, and with the costs of building maintenance shared across other owners.

But what makes a good investment unit or apartment?

Location is still the more important factor

You can’t get past the fact  you need to look for an apartment in a good spot. In the city, walking distance to public transport and shops is a must. Nearby schools can be handy but many renters are single or young, childless couples, so a school nearby is probably going to be third on the list after a train or tram station or a very reliable bus route that is here to stay, and shops, cafés and other services. Buyers agents say you should look for a quiet side street rather than a busy main road.

Many renters are professionals who want to get into the city fast. For that reason, apartments closer to town are recommended over those on the outskirts by many buyers agents who argue they will attract higher capital growth. The downside is they often cost more to buy than units further out.

An apartment in an area where there’s high development and plenty of other similar flats around would probably grow in value more slowly than an older unit in a pre-1980s building. That’s because at sale time there could be stacks of similar new flats on the market but a well-built, well-located older unit will be a scarcer find.

TIP: Good location will bring not only higher rent but also stronger capital gains, which many investors favour.

Amenities are critical

You might get away with a shared laundry (although internal washing facilities are better) but you will definitely want to look for a place with a car space. It broadens your likely tenants, and also, when it comes time to sell, gives you a valuable marketing point.

Choose big or small block

Apartments in large complexes tend to have higher running costs because there are often more facilities, such as lifts, gyms and pools. Therefore your strata fees will be bigger and your rental return or yield (calculated as your annual rent divided by your purchase price, multiplied by 100 to give a percentage) could be lower. That’s one of the reasons many buyers agents tell investors to look for older-style three-level walk-up apartment blocks.

Less units or apartments on the block also mean that each owner owns more of the land than owners in larger developments. Because land value accounts for a significant part of the value of a property so you might be able to get a higher capital growth from units or apartments on smaller blocks.

TIP: Look to buy in a smallish block which had a very high ration of owners to renters. That way the owners will generally look after the day to day running of the block and be on the executive committee. They will also ensure the common property is maintained e.g. broken windows in common areas, which could mean lower strata fees and a higher scarcity value come sale time.

On the flipside, proponents of newer apartments argue they can attract a higher rent, and will be let faster as they are more attractive to tenants. In NSW, the Government has also recently introduced incentives to buy off-the-plan apartments. There’s also the higher depreciation benefits that can be claimed from a newer building, simply because they have more plant and equipment in the building that can be depreciated, which some investors find very handy at tax time.

If you are tossing up between an old and a new apartment, you really need to look at rental yields of other units in each block, and also the capital growth history of apartments in each block. To do this, you can ask the agent for figures they may have, search sales and rent history online or consider purchasing reports from research companies such as the Fairfax-owned Australian Property Monitors.

Outlook is important

Most of us don’t want to wake up looking at a brick wall every morning, so it makes sense that the apartments most likely to appeal to tenants and future buyers alike are those that have a nice outlook. Check with council to make sure there’s no developments planned nearby that could impinge on that view.

You’ll also want something that is nice and light and has a decent internal layout – not too poky. Storage can be important in units where space is at a premium so that’s another factor to consider. If there is not enough stow-away space, you might consider adding a bit extra once you take possession if you can squeeze it in.

Be sure to check the sinking fund amount

For older apartments where maintenance is likely to be required, it’s vital to investigate the amount of money in the sinking fund. You’ll want to make sure it’s enough to cover any big-ticket items such as lift repair, car park resurfacing or painting the building. If there’s not you could be up for a special levy after you buy.

(Source: Carolyn Boyd – SMH.com.au)