To Brisbane 2010, I think Kangaroo Point and South Brisbane are prime locations to look as they will continue to be popular and there are still a few studios around at under 200K but not many.   East Brisbane and Kelvin Grove and Bulimba are good locations as well, but there are very few sub 200K units in these locations.  

With all due respect to Alani, the studio apartments I own deliver a yield of approximately twice the yield of cheaper two bedroom apartments and nearly three times the yield of the rented houses I own. My two-bedroom units are all fully renovated and in the inner Brisbane suburbs, and they currently rent for between $310 and $330 per week, while my studios, at about half the buy-in price deliver that or more per week. 

The simple fact is that studio unit investors generally benefit through a much lower initial outlay, lower costs to maintain the property, and proportionately higher yields. There is no downside for investors who want to borrow up to 100% and have other security to offer, or to investors who choose not to borrow.   For investors who want to borrow and to use the studio unit as their only security, they would generally need a deposit of between 5% and 25% of the purchase price (depending on the particular bank, and the investor’s situation and relationship with the bank).  Some of the larger banks don’t lend on studios while others always do.   All banks generally want fair deposits these days from investors where the investor does not have additional security – this applies regardless of the type of property that is purchased. 

I note Alani’s recent comments on another “Property Investing” thread:
 “Well my prediction is property will generally go up around the country. Its funny how between 2002-2007 interest rates were on the incline yet property went up in the value. Rates will start to rise again but that won't stop ppl buying property. There's a massive shortage of undersupply and that will remain the same for the next ten yrs. Intake of migration, China and India becoming westernised, I mean, who cares about America anymore. Has China stopped growing during the past year?? The mining industry is set for massive growth.   Australia will keep growing, land will become even more expensive…” 

I certainly agree with these views about increased demand for accommodation and the undersupply of residential property in Australia’s in the next 10 years. 

Alani’s idea about buying a high returning but cheap 2 bed unit is not a bad way to go, and I’ve done that a number of times myself.  The difficulty of course is finding an affordable 2 bed apartment delivering anything like a net 6% yield.    

For example: For a $300k two bed unit to deliver the 6% yield required to almost break even (i.e. to nearly cover the interest component of the bank loan), the property would have to deliver to you $18,000 net, after body corps, rent, insurance, rates and maintenance is taken out. Therefore the gross rent, assuming you managed it yourself, would need to be around $25,000 or possibly more.  That equates to at least $480 per week.   The majority of cheaper renovated 2 bed apartments that are rented in SE Queensland cannot achieve that rent for the owner and accordingly do not yield anything like 6% or 8% of the buy-in price.  Usually the yield is in the order of 2 or 3% if you are lucky – so they certainly do not break even at the outset and usually require ownership for many years before they do.  Then if you have to renovate the apartment, I suppose you might need to spend between $10,000 and $25,000 depending on how far you want to go.   The rental return would increase after renovation but you would lose your rental income during the period that you are renovating.  

Alternatively a small studio unit that costs from $150K to $200k and should deliver a much higher proportionate annual return if it’s well located.  A renovation, if you ever need to do one, is generally lower cost also. 

As I mentioned in an earlier comment, I’m a great believer in diversity of property assets, and my message to investors starting out is to try to buy and hold a few of each property type in good locations if you can, and over time you will do well I’m sure. 

Good wishes to all…………..
Thomas.

Hi again Auss007. 

Thanks for the extra points you mentioned as well J900.

I did quite a lot of homework before investing in this particular building, so I can answer most questions. I will address them point by point and provide some hopefully worthwhile tips as well!
 
Three of my business associates bought studio apartments in there around two or so years ago and all have seen gains. They want to hang on to them. Another investor friend of mine is looking to buy a river facing apartment in there at the moment. He doesn’t want to spend moré than $200k but wants a regular type studio close to Brisbane CBD.  Very hard to achieve in Brisbane in today’s market! 

I know there are some new and temporary staff filling in at the place right now and that would account for the incorrect information you were given.  I’m sorry you had that experience.  I was in there recently myself and I know that whoever was behind the counter was really struggling to answer questions.  Until they sort out the temp staffing situation I would hope they would have the good sense to redirect enquirers to the licensed real estate agent who should have all the factual info. 

I contacted one of the staff to discuss the plumbing problem you mentioned. Apparently it should have been fixed that day. Unfortunately, these types of things happen occasionally in residential apartment buildings.  The important thing is that the problem is sorted quickly with minimal disruption to all.   I’ve never heard of anything like that happening there before, but there’s always a first time.  In a much older building in which I own an apartment not too far away there is a plumbing issue about every 2 months which is a real problem but the residents are pretty used to it.  

The details I have given previously in this thread about fees and costs for investors are accurate. There is no fine print as such in relation to any fees and charges. The only weekly cost to unit owners is the cleaning/linen hire fee being $36.40 per week and the standard letting commissions.  Between tenancies there is a substitute cleaning fee for that particular week called a departure service fee, so that is where the new staff probably got confused. Costs to owners are very low overall.  

The $420 per week is the regular (non-student) tariff applicable to the “Premier Deluxe 2 bed apartments” for stays of up to 11 weeks.  It reduces to $375 if the tenant has a student card. Longer stays, for up to a year, are at lower weekly rates.  If rented by the bed for under 12 week stays the same apartment can return $500 per week.    Dormitory apartments contain an extra bed and return slightly higher amounts again.  This is explained in the current tariff table.   

Since I have been involved in this building, there is usually somewhere between 5 and 12 units for sale at any given time. This may sound like a lot but actually it only represents 3 to 7% of the total number of apartments in the building.  Some units sell very quickly. Others can take quite a long time, particularly if they are a bit tired and need walls repainted, new floor coverings or something like that.   

By the way, you are right about on-site managers in such buildings – If they think you might be inclined to want to remove your apartment from their letting pool, they can be very unhelpful and completely discouraging – and it gets worse if that are not actually allowed to sell the units themselves.  

An interesting story: In two other buildings I looked at in Brisbane about three to four years ago, the on-site managers were in the business of running the building and apartments down to every prospective buyer who came in the inspect them. I started to get suspicious and when I began to delve a bit I found the managers were quietly buying the units up for themselves – one had 17 units already and wanted to acquire the remaining 7 and the other manager was in the process of acquiring his 19^th unit in that complex of 65 units. So I guess, the moral of the story is that while it can be useful to talk to on-site staff – mainly to gauge it they are competent or not, all on-site managers will have a vested interest in keeping their letting pools large and dissuading owner occupiers, and much of what they say is coloured accordingly.  It seems to be just a fact life in that business, but a good point for buyers to know.   

Cooking smells are par-for-the-course in large apartment buildings everywhere.  There is a mixture of overseas visitors and local people in this particular building and it’s no worse than anywhere else.  Young people generally tend to live in these blocks – but I know a few older people who find the smaller units just right for their needs. They site the security aspects as important to them.    

The current FHOG makes studios in general attractive to people trying to get into the property market – particularly singles. Sometimes however they can still have problems getting finance.  

Borrowing: LVR is an issue but has not been too bad overall.  There are one or two of the major lenders doing 80% or 85% if the borrower has no other property security to offer.  One does 95% with an extra fee. Another bank does 70%.  If the borrower offers other property security then of course borrowing would be expected to be up to full value/sale price or higher. I have been quoted 110% in such circumstances.   

Although the obvious negative with small studios is that there are still only a few of the major lenders currently lending on them, I have read that this situation could change dramatically over the next 20 years. Some financial analysts in the industry have predicted that change to happen much quicker, but we’ll have to wait and see.    

The simple economic reality is that people will need to be accommodated in smaller residential spaces in the future in all of our major urban and regional centres – so it is quite likely that with continued population growth in our cities, studio living will become more and more the norm rather then the exception.   It’s hard to imagine things going the other way! 

To J900, thanks for mentioning Unilodge. I am familiar with one of their buildings in Brisbane but I do not own any studios that are purely student accommodation, but I know a couple of people who do, and they seem happy enough with the annual returns.   

Shafston Mansions was designed to be a mixed use residential studio apartment building, and it is unlike purely student accommodation buildings in some important ways. 

Some critical differences worth knowing are:

 ·        Shafston Mansions units are fully self contained studios with kitchens (not all student accommodation is).

 ·        The unit owners at Shafston Mansions have full control of the building through a regular body corporate. As the owners are investors looking for good returns they will strive the keep costs to owners as low as possible.

 ·        These apartments can be let to anyone – they are not just for the College students (unlike Unilodge for example – which I believe is quite restrictive in this regard).

 ·        Any unit owner can remove their apartment from the on-site manager’s letting pool at fairly short notice, and then list it with any outside real estate agent. This happens occasionally, but most investors don’t bother to change as the returns are slightly better through on-site manager.
 
·        There can be no hidden fees and charges. That would be illegal. All owners are offered a standard Queensland PAMD letting contact through the on-site agent.  They can negotiate whatever letting terms they wish.

·        The rental tariffs through the on-site manager’s letting pool, are set in consultation with the Owners…so that gives owner investors a greater say overall.

·        Obviously the unrestricted use of these particular apartments means that they will be tenanted regardless of educational demand for courses. So there is much lower risk on that front.  

Strata titled studio apartments have been good to me. As I say, my aim is to own them long term. My game plan is to acquire one more in the Mansions and possibly a couple more in other Kangaroo Point buildings as well over the next few years.  
 
Just a few final comments about my preferred approach to property investing – which I’m happy to share with you:-

I been active in the property investment business for more than 20 years now and I’ve done  a lot of property renovations over this time as well. I’ve bought more than I’ve sold. Most of my investments happen to be in the locations I know well. I always do my homework before I buy anything. I don’t mind buying properties that have untapped potential – I find them to be the most interesting of all. 

Like everyone else I like low risk properties which don’t cost a lot to hold on to.  I tend to search out properties that I think will have quicker capital growth potential than the overall residential market – which usually means buying in prime locations.   Sometimes also, this means doing something a bit different……as…. if we all invested in the same things most of us would probably be not be as successful today.  

An important thing from my perspective is to make informed decisions and preferably to have a balanced property portfolio. For me, yes, this is about sometimes owning the entire property (for example, blocks of flats and individual houses) where you have full control, some rural proprty, as well as having strata titled high-returning apartments, and not forgetting some mixed commercial property shares. 

I’m always open to new ideas and strategies.  I find that no matter what your experiences happen to be in this business there is always more to learn. 

Well that’s enough from me. Thank you for providing a good forum to share property ideas.  I hope my experiences have benefited at least a few readers with similar aspirations.  

……Thomas. 

Hi Auss007 

Fortunately I happened to be on-line when your request for info came through.

I am an investor in Shafston Mansions and can answer your questions with a fair degree of accuracy. I’ve just visited that building myself recently and I have attended the building quite a lot over the years so I know it pretty well.    

The units are very good buying for a few reasons.  

In my opinion they happen to be best small studios units in Brisbane if you want a Kangaroo Point location and views.   I have bought others in South Brisbane, Kangaroo Point and Hawthorn and Morningside, but these Kangaroo Point studios have given me the best rental returns of all of them. 

I have owned my units in the Mansions for three and four years now and I don’t think I will ever want to sell them….. probably will pass them to my grand kids!   I intend to buy another one this financial year and put it in our super fund. 

There are no hidden costs for the unit owners, so don’t worry at all about that one, and some of the fees/costs you mentioned don’t exist.  For example there is no GST on the rental tariffs, and there is no “$65 cleaning weekly cleaning fee” either.  There is no internet access charge to unit owners. The only monthly charge to the unit owner is the $3.00 monthly statement fee.   

There may be a few optional extras that tenants can pay for if they wish but they don’t affect owner’s returns in any way.  

Occupancy: The occupancy hasn’t been down to 82% for probably 4 years.  Occupancy sits at 91% / 92% normally…. and that’s by bed – so the unit occupancy in the building is normally at or near 100%. 

If a new building is eventually built next door there will be a reduction of the suburban views on one side of the building only, however the units that currently have the great river and city views should always have them. Fortunately the heritage listing of that whole section of riverfront land means that the water views from most of these units can’t ever be built out. That’s important to know as an investor and if you choose to live there. 

Tariffs: The current tariff rate if the unit is let through the on-site manager ranges from $295 per week to $420 per week, with higher rates applying in some circumstances.   The tariffs will probably increase substantially next year as they are generally "booked out" at those rates.  The demand for accommodation so very high.

The rental returns are good. The net return I receive is on average between $1000 and $1300 per month.    The $36.40 per week linen/cleaning charge and the agent’s full commission entitlement (7.5%plus GST) has already been deduced before I receive those monthly amounts.   They are the only weekly expenses charged to owners. 

Of course if something has to be replaced in the unit such as a microwave, the owner will be charged then – but that is quite rare, and the cost of any replacement is very competitive.  The tenant is charged for any item they break or lose (not the unit owner).   

You may be interested to know that the average sales prices for units sold in that particular building this year are: $144,000 for the smallest non-balcony units in the building; $159,000 for usual balcony units; and $181,000 for river facing units (which very occasionally come up for sale and tend to sell quickly).    

There is still depreciation benefit for investors – so that makes them slightly more attractive.  

Capital growth has been outstanding for the last 3 years and I expect this should continue over the medium and longer term, particularly as the alternative studios in Kangaroo Point are much more expensive to buy and own; and generally return much less as a proportion of outlay.  

Good luck to you Auss007 in your search. I hope the information I have given is helpful to you, or anyone else who happen to be interested in these particular apartments.

 …..Thomas.  

Hi Auss007 

Fortunately I happened to be on-line when your request for info came through.

I am an investor in Shafston Mansions and can answer your questions with a fair degree of accuracy. I’ve just visited that building myself recently and I have attended the building quite a lot over the years so I know it pretty well.    

The units are very good buying for a few reasons.  

In my opinion they happen to be best small studios units in Brisbane if you want a Kangaroo Point location and views.   I have bought others in South Brisbane, Kangaroo Point and Hawthorn and Morningside, but these Kangaroo Point studios have given me the best rental returns of all of them. 

I have owned my units in the Mansions for three and four years now and I don’t think I will ever want to sell them….. probably will pass them to my grand kids!   I intend to buy another one this financial year and put it in our super fund. 

There are no hidden costs for the unit owners, so don’t worry at all about that one, and some of the fees/costs you mentioned don’t exist.  For example there is no GST on the rental tariffs, and there is no “$65 cleaning weekly cleaning fee” either.  There is no internet access charge to unit owners. The only monthly charge to the unit owner is the $3.00 monthly statement fee.   

There may be a few optional extras that tenants can pay for if they wish but they don’t affect owner’s returns in any way.  

Occupancy: The occupancy hasn’t been down to 82% for probably 4 years.  Occupancy sits at 91% / 92% normally…. and that’s by bed – so the unit occupancy in the building is normally at or near 100%. 

If a new building is eventually built next door there will be a reduction of the suburban views on one side of the building only, however the units that currently have the great river and city views should always have them. Fortunately the heritage listing of that whole section of riverfront land means that the water views from most of these units can’t ever be built out. That’s important to know as an investor and if you choose to live there. 

Tariffs: The current tariff rate if the unit is let through the on-site manager ranges from $295 per week to $420 per week, with higher rates applying in some circumstances.   The tariffs will probaby increase substantially next year as they are genrally "booked out" at those rate. The demand for accommodation so very high.

The rental returns are good. The net return I receive is on average between $1000 and $1300 per month.    The $36.40 per week linen/cleaning charge and the agent’s full commission entitlement (7.5%plus GST) has already been deduced before I receive those monthly amounts.   They are the only weekly expenses charged to owners. 

Of course if something has to be replaced in the unit such as a microwave, the owner will be charged then – but that is quite rare, and the cost of any replacement is very competitive.  The tenant is charged for any item they break or lose (not the unit owner).   

You may be interested to know that the average sales prices for units sold in that particular building this year are: $144,000 for the smallest non-balcony units in the building; $159,000 for usual balcony units; and $181,000 for river facing units (which very occasionally come up for sale and tend to sell quickly).    

There is still depreciation benefit for investors – so that makes them slightly more attractive.  

Capital growth has been outstanding for the last 3 years and I expect this should continue over the medium and longer term, particularly as the alternative studios in Kangaroo Point are much more expensive to buy and own; and generally return much less as a proportion of outlay.  

Good luck to you Auss007 in your search. I hope the information I have given is helpful to you, or anyone else who happen to be interested in these particular apartments.

 …..Thomas.

Hi Jon Thanks for your reply.

I am happy to share some more info with you.   
 

I’m not an agent. I am a very keen investor and property researcher with more than 20 years experience.  I mainly specialize in property investments in South East Queensland. 

The Shafston Mansions units were sold originally at premium prices in 2000 and 2001 and the prices fell as the market settled and the original rental guarantee arrangement ceased.  Of course this trend is quite normal for many new apartment buildings. One has only to look at the Gold Coast to see lots of similar examples there.   

You are right in that the prices bottomed out in the sub $100,000 range a few years ago. A price bounce back was delayed due to very poor marketing and a few very gullible overseas owners accepting low prices for their units.  The lowest price ever recorded was $84,000 for a non balcony non-air-conditioned non-view unit.  

Of course the units with river views or good city views have always fetched significantly higher prices than this. At their lowest point (in mid 2006) a three bed unit with good river views and balcony fell to a very low $135k.  Most owners today are switched on and won’t sell their units below a reasonable market price, which is fair enough hey.   

Some recent sales in 2007 and 2008 are:
·        A 9th floor Shafston Ave facing apartment sold for $132k
·        A 6^th floor corner apartment sold for $132k
·        An 8^th floor (non balcony) apartment sold for $136k
·        A 6^th floor (non balcony) corner unit of slightly larger than average size sold for $140k.

Very recent sales include:
·        Two balcony apartments sold for $135k and $138K respectively.
·        A 6^th floor unit with quite good (but obstructed) river views sold for $155k
·       Two non-view non-balcony smaller style units sold for $115k & $120k resopectively. 

I guess one would now expect to pay between $155k and $185k for a unit with very good river views, but they rarely come up for sale at these prices in that building.   I couldn't imagine an airconditioned  unit with balcony selling for less than $135k now days and prices appear to be moving upwards.

One has only to compare the above sales results to the sales prices and annual rental returns of studio apartments at other Kangaroo Point buildings to see how attractive Shafston Mansions still is.  (To name a few: check out the old “Olims” buildings on Main Street where prices are now approaching $330k for the river facing units;  the older style “Bachelors” apartments also on Main Street and the “River Gardens” apartments on Wharf Street where prices are also much higher than at Shafston but returns are often lower.) 

Yes the rental returns I quoted are net to the owner in that the management fees (roughly 9%) and cleanings costs etc have already been deducted.  Not all months achieve $1000 but on average they are achieving that or a bit higher for me. The building is at about 95%+ bed occupancy on any given day, and thanks to the proximity of the university, tenant demand exceeds supply. 

I hope the above info is helpful.   

Kind regards……