Hi
Most of what I have read suggests that houses make better investments than apartments (mainly because of the capital growth linked to the land content of houses). However, in Melbourne it seems that the prices of apartments have fallen quite significantly (from 5-15% in my estimation) which means that Melbourne apartments seem quite cheap at the moment. Furthermore, the yields on apartments are much higher than the yields on houses. So, despite what I’ve read, I find Melbourne apartments quite appealing (given the yields and lower entry points than houses – ie. you can buy an inner city 1 bedroom apartment for as low as $175k). But I am new to the game – and would appreciate some advice. Any suggestions appreciated.
Thanks
SimonHello Simon,
Firstly I guess, it depends on what it is you hope to achieve from your investment. If you plan to “buy and hold” then your 175K entry level apartment in Melbourne will be fine, but if you plan to keep it for just a few years (<5) and are more concerned with immediate cashflow you could experience a few headaches. There is an ever increasing over supply of apartment buildings in Melbourne’s CBD and vacancy rates are incredibily high at present as a result.
Furthermore, and this is purely personal perference, I would never buy anything less than a 2 bedder anything (house or unit/apartment) unless it is going to be for yourself to live in, as they don’t generate anywhere near the same income as 2+ bedroom IPs.
As a fellow Melbournian, may I offer you a suggestion??? If you are looking for growth, I suggest you take a closer look at the inner circle surrounding the CBD and work your way outwards. Although the prices become more affordable as you venture further out from the CBD (as in most cities), there is still alot of good buying value within close proximity to the CBD and entry level properties are still very much a possibility. But I guess it all depends on your budget and your overall investment goals.
Cheers, [biggrin]
Jo
Simon,
One bedroom units are the way the experts are saying to go.
With more people living on their own, it seems logical to go the one bedder’s way.
But, what I hate is the strata fees.Every unit is another corporate fee. Most one bedroom units strata levies, in Sydney, are around five hundred dollars a quarter.Two thou.per year.If you own three or four, that’s big dollars.
I’m doing a dual occ. This way you avoid strata levies.
bruham.Are they Bbruham???
Oh well, there you go, you learn something new everyday!!!
Thanks Bbruham, it’s always good to learn from someone who really knows their stuff!![winking]
Cheers, [thumbsupanim]
Jo
“One bedroom units are the way the experts are saying to go.”
This is the second post in as many days where “experts” have been used to qualify a statement which is not quite correct.
One bedroom apartments are not necessarily the way to go, especially in Melbourne at this time.
The fundamentals of real estate investment stem from supply and demand – and common sense.
If there is an oversupply of any particular product, i.e. 1 bedroom apartment, then it is unlikely to be a good investment.
If there is an undersupply of any particular product, i.e. quality 3-4 bedroom apartment in CBD, then it is likely to be a good investment.
— Michael
“what I hate is the strata fees. Every unit is another corporate fee.”
And there are no costs associated with maintaining a single family home.
Do not only account for tangible costs, also take into account the “time” spent maintaining a SFH and property.
In most cases a strata fee is less than the cost to maintain a SFH on an annual basis.
— Michael
Hi Simon,
just add one or two thoughts to assist your decision making.
I have heard it said that one bedroom apartments are the way to go. However, most one bedroom apartments are very small — in this day and age everyone seems to have a computer, a home office or the need to continue their education part time (evenings). So even if a person lives alone, flexibility and room to move are essential. So I would agree with Monopoly’s comments re a two bedder.[biggrin]
The other thing is the supply demand ratio (Michael’s point). Before buying an apartment, check the Age and see the type of rent achievable. You might be disappointed. Check out the apartments in person to gain an understanding of current market fundamentals. Also an issue to be concerned with involves potential vacancies.[angry2] If you are starting out on your property journey, an extended vacancy can be heart breaking, especially if you are negatively geared and rely on a regular income to pay your mortgage.[baaa] Anyway these type of issues have been aired previously on this forum. Check out the archives for more information.
Hope this helps.[cap]
Regards,
Helen“houses make better investments than apartments (mainly because of the capital growth linked to the land content of houses).”
The above statement is correct at times. The preference is often more aligned with “best use” which provides options and can increase capital growth at a faster rate than a typical apartment.
For example, single family homes are often on a lot which can be redeveloped – where an apartment cannot.
If the zone changes and apartments or commercial buildings can be built on the lot by right, then its “best use” changes and the value of the land increases.
However, the value of an apartment is generally inclusive of land also, i.e. if there are 10 apartments, each apartment owns 1/10th of the land [simple example] and is valued accordingly.
Because apartments are more of a static investment – what you buy is what you get, this does not mean to say they cannot appreciate in value as much if not more than a single family home – the “demand” factor.
Furthermore, an apartments value will often appreciate if the house down the road has been rezoned to commercial, for example.
Apartments are driven by several factors which should be taken into consideration when looking to buy, including:
1. convenience, i.e. location.
2. offering amenities/services which many people cannot afford in a single family home, or do not have the time to add-on.
3. second home, i.e. vacation or business.
When considering an investment in real estate, do not be overly influenced by what you read – including what I have said, research the location including planned development, zoning, sales trends, etc, and compare property types to determine which one fits with your investment strategy, in terms of risk versus reward.
— Michael
Single person household increases in city areas are well-documented:
“Melbourne’s socio-demographic characteristics have also been changing… dwindling average household size and a significant increase in the proportion of single-person households, a trend towards delaying child bearing, and so on. Changes like these have important implications for infrastructure planning, including the provision of transport.”
http://www.btre.gov.au/docs/atrf_02/papers/28Morris.doc
And check out this paper too- unfortunately, I can’t cut and paste for some reason. But this ANU paper- written in 2004, predicts that 1 person households in australia will increase by 249% to the year 2030.
http://www.ahuri.edu.au/global/docs/doc698.pdf
There are many papers and reports which discuss 1 person households as an increasing market trend.
Per room, 2 or 3 bedroom places don’t necessarily achieve more than city 1-bedders. A colleague of mine just rented a 3-bed house in Summer Hill (a nice village suburb 8km’s out of the sydney CBD). Per room, it gets about 25% of my rent. In fact, the whole house barely gets more rent than my one-bedroom place. And yet, that house would cost probably $1 million dollars (not hard for a house in a decent suburb in sydney), whereas mine was much much cheaper.
simon, a 1-bedroom apartment can be an entry into the market. I wouldn’t go for one of the millions of student apartments in carlton or somewhere… actually, melbourne is a tough market for inner-city apartments generally (ditto for a lot of sydney, and for places like fortitude valley in brisbane), but there is an increasing demographic of single households, and yields can be very worthwhile for some city apartments.
It’s not a trend to be ignored. As prices in cities become more inaffordable, and you have a greater amount of renters in general, increasing amounts of International students who want to be in the cities, people marrying later, childbirth rates falling, and even older people who get sick of sharing houses… well, there’s definitely a market there.
kay henry
Per room, 2 or 3 bedroom places don’t necessarily achieve more than city 1-bedders.
True Kay,
This is because of the so called “trends” and the increase of one person households that is indeed occurring. However, although one bedders can (and obviously trends suggest they currently do) achieve better rests, IMHO history has proven that trends can (and do) change. Which is why I like to play it safe, hence when I buy an investment property, and again, as I said in my first post, because of personal perference and as part of my long term investment strategy, I always buy properties that will accommodate various tenant structures; singles, couples and/or families……that way, I am covered on all levels!!! [biggrin]
Cheers,
Jo
Hi Simon,
A little information from t’otherside that may be consistent with the Melbourne market.
Wizard have just completed a study of long and short term sales trends which revealed some interesting pieces of information:
1. During the past three years compounding growth rates for two bathroom homes was 12.6% and for one bathroom homes it was 15.9%.
2. The superior growth rate for one bathroom homes continued over a 15 year period.
3. 1, 2 and 3 bedroom homes outperformed home with 4 bedrooms. The compounding growth rate for one bedroom homes was 12.9% whereas it was 10.7% for four bedroom homes over the recent five year period.Obviously a simplistic set of statistics that would warrant further investigation but these results ‘support’ the long term potential being bandied around about smaller units.
Of more important consideration is the location of the property – simplistically put the better growth properties are closer to city centres – albeit redevelopment/renewal programs can distort these findings.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thanks very much everyone for all your comments.
Certainly is interesting how there are so many different perspectives on the various approaches to property investment. I appreciate all your comments.Two final questions:
1. If I was to buy an apartment, would you recommend buying a service apartment (ie. within a hotel). Seems that the yields are good and are guaranteed, but the capital growth doesn’t look as good. Anything to watch out for?2. Jo, thanks for your comments on the areas close to the city. Anywhere in particular? Feel free to personal mail me.
Many thanks.
SimonJust sent you a PM and an email Simon. [biggrin]
Jo
Simon,
The Melbourne market in general is declining. The economic forecast for Victoria over the next 10 years is not good. Whether you spend $175 or $375 on a unit or house in Melbourne the question is will it be worth much more over time.
I would be investing in Queensland or WA. These two states are experiencing significant population increases and the economic forecasts are extremely positive.
Regards
Michelle Foley
Director
Precise Realty
4/2 Rowe Street
FIVE DOCK NSW 2046
m 0419 018 885
e [email protected]
http://www.preciserealty.com.auMichelle Foley
Director
Precise Realty
4/2 Rowe Street
FIVE DOCK NSW 2046
m 0419 018 885
e [email protected]
http://www.preciserealty.com.auOriginally posted by Precise Realty:The Melbourne market in general is declining. The economic forecast for Victoria over the next 10 years is not good. Whether you spend $175 or $375 on a unit or house in Melbourne the question is will it be worth much more over time.
I beg to differ, yes perhaps in defence of MY home state!!!
I am by no means arguing that Victoria is second on the list of Oz states in decline only marginally behind NSW, but I’m afraid, you may need to consult more reliable sources for information as the picture you paint is grossly incomplete and misleading. I have invested 23 years in Victoria (including interstate) and if nothing else, I know that such claims are made by doomslayers or non-Victorian with vested interest in other states. [wacko] Are you trying to sell something there perhaps??? [blink]
I do, on the other hand agree, that WA and Qld have and will continue to have growth potential, but that does not rule other states as candidates for “must misses”!!!
Jo
P.S. If you would like a more ACCURATE and detailed picture of expected growth trends in all the Australian States, as a comparison for your obviously deficient data source from which you base your assumption, feel free to PM or email me; I will be only too happy to oblige.[biggrin]
BTW..I thought it strange for a first post!!! [blink]
Not strange for a first post if that is what you strongly believe though…
Welcome to the forum Michelle! All posts are welcome whether people agree with them or not. You will come to know Monopoly as one of our more opinionated and very well informed forumites… [biggrin]
Cheers,
Ali G
Hardly Ali, but thanks for the vote!!! [blush2]
I tend to get a bit miffed by sweeping generalisations that are loosely thrown around with little or no supporting evidence to back them up, and which sadly appears to be the norm within this community, hence why Somersoft is the better option for highly opinionated characters such as myself.
Enjoy your time here Michelle; you will find many wonderful people amongst this lot, Ali G being one of the sweetest of them; always there to help a damsel in distress, especially from tryrants such as yours truly!!! [whip]
Cheers,[biggrin]
Jo
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