In recent times, there has been an increasing acceptance of apartments relative to houses. They cater for differing accommodation needs, especially from the younger generation. Families are getting smaller; people have less time on their hands to maintain gardens etc.
Apartments must meet your requirements
One-bedroom apartments, as opposed to two- and three-bedroom apartments may be very popular because more people are increasingly living alone. Do verify this according to the location demographics.
Investors need to be mindful that tenants gravitate to properties that meet their needs.
Given Australia’s changing lifestyles and shrinking households, the right type of one bedroom apartment could make a fantastic addition to your property portfolio. It may provide decent rental yields and above average long-term capital gains as a more affordable inner city asset and location.
Apartments may have higher rental yields
One of the main advantages with apartments is that they tend to have a higher rental gross yield as a percentage of their purchase price.
- Gross yield is everything BEFORE expenses.
- Unfortunately, the property’s NET yield can be low if you consider all other expenses required to maintain the apartment. It includes expenses like body corporate fees, which can be very high depending on the amenities and facilities offered (e.g., lift, swimming pool and spa).
Apartments can have less consistent capital growth
Apartments frequently achieve just as good returns as houses in areas that are fully built up with height limit restrictions on further development.
On the flip side, the main disadvantage is that apartments typically show less consistent growth in areas that are not fully built up, or when supply is plentiful.
Owners have less control over the property
Owners of apartments typically have less control over their asset. Any changes they want to make to their property usually requires approval from a body corporate. The opportunity to add value is restricted.
Body corporate (or owners’ corporation) is an administrative body made up of all owners within a group of units or apartments of a strata building. The owners elect a committee, which handles the administration and upkeep of the site.
Owners have to contribute to the running of the body corporate. Compulsory fees and charges are generally higher. It leads to a lower net yield or rental incomes.
Apartment size matters
It is also hard to get good finance for some type of apartments. This is especially for very small apartments under 40 meters square.
The ceiling height or volume of the apartment is vital to create the required space for liveability, appeal and future resale. Many new apartments have ceiling height of 2.6 metres. It would be best to have a 2.7 meter (or more) ceiling height.
Number of apartments are important
Check how many apartments in the complex are owner-occupiers. Owner-occupiers tend to take a much more active interest in the upkeep of the complex or building. If more than 50 percent of the apartments are owned by owner-occupiers, the complex should be well maintained.
The views that the apartment can offer are important. If you are buying an apartment with good views, check that nothing in the future will interfere with these views (i.e., construction of a new building in front of your apartment).
Parking is important
Parking is also very important when buying an apartment. Do check that the apartment has a dedicated car park bay and ownership structure of car park bays in the complex.