Hi there,
I've just joined this forum and have been reading previous posts through the archives with much interest. I am so impressed with the knowledge and support available here.
As a newbie to property investment I'm interested in hearing thoughts on investing in small one bedroom apartments in the Melbourne CBD (ie. not Docklands). I'm trying to aim for something with parking but I've noticed the older buildings with more character often don't have car spaces. Perhaps this isn't an issue for someone who lives in the CBD anyway??
We have a fair bit of equity in our PPOR (we've paid off about 3/4 of our loan) and are eager to get started but also cautious at the same time. Our aim is to eventually, over time (next 10-15 years), build up a small property portfolio that will help contribute to income as we get older.
Also, if anyone can recommend specific books to read about property investment for first timers I'd love to hear about them.
Thanks!
Hi Kyanne
Firstly welcome to the forum and I hope you enjoy your time with us.
With equity in your PPOR you certainly have the recipe to go forward and start adding properties to your portfolio however one of the key mistakes i see with virgin investors is the way they structure their loans and whilst this may not cause an initial problem will lead to issues down the track.
When you start you need to consider in what name or names or entities you will use to buy each and every property. The last thing you want to do is starting buy + cash flow properties in the name of the highest marginal tax payer when using a Discretionary Family Trust would give you more options and flexibility.
Conversely dont buy a property in a DFT where you need to claim the negative gearing on the property as this will be held within the Trust.
Secondly try where possible not to cross collateralise your loans. Most lenders or Bank staff are only interested in protecting their own interests and in most cases have no knowledge or experience in how to set up an investment loan correctly.
Get your mortgage broker to show you how to make the loan / s work for you and not the Bank.
A little bit of planning in the early stages will help you tenfold as the years go on.Richard Taylor | Australia's leading private lender
Hi Kyanne
Books? Oh, there are lots of them! It really all depends on what sort of level you're at.
I do think Steve's first two books are a good read. Also anything by Jan Somers gives you a good idea of the basics. I'm also a Hans Jakobi fan, if you can manage to listen to the smart things he has to say without getting swayed around to buying high yield properties all the time!
As for your ideas on your first investment, I'd seriously consider using a buyer's agent. If it were me I'd use Metropole because I've heard them speak a few times and they've impressed me, however I'm sure there are others around that are good.
There are a whole number of reasons why I don't buy units very often, and I'd certianly be interested in your reasons for considering one in this instance, so I can see if I think they are valid. In any case, I'll go on a short rant about why I don't buy units (especially small ones in big complexes).
Body Corporates – If you own an investment house, you make all your decisions yourself. If you own a unit, not only do you have all these extra charges, but you also have very little say in the running of a building in which you own a portion. The other issue, however unlikely, is that interest rates rise dramatically, half the owners get their units repossessed, and then the rest of you all have to pay double body corporate fees to make up the difference. Sounds ridiculous, but I've seen it both on the Gold Coast and the Brisbane CBD.
Land Content – this is generally what drives price increases in investment properties. Units just don't have a lot of land content. If I were to buy a unit or a townhouse again, it wouldn't be in a complex of more than around 10 units.
Renovation – much less opportunity to add value to a unit than a house.
Valuations – Here's a fun one! Imagine you're thinking of refinancing to pull out some added equity because you think your flat you bought 3 years ago for 400K is now worth 500K. Great! However, a couple of owners in your block have hit tough times, and they've just sold off their flats quickly for 400K because they needed to sell fast! Since all 100 units are pretty much the same, guess what the bank values your unit at? Now obviously a similar thing can happen with a house, but not every house in a street is exactly the same, but often all the units in a block are.
I'm pretty sure I've got more reasons on a good day, but that's enough to start with I think!
Oh oh, finance issues! Forgot that one. I'm not sure what it's like at the moment, but last time I checked (years ago) many lenders were hesitant to lend on anything less than around 50 square metres. Obviously check that one for yourself.
Contrary to how it may appear, I'm not totally against buying certain types of apartments. I do realise that the average household now has fewer people in it than it did a decade ago, and that some people would prefer to hear everytime their neighbours sneeze than to mow a lawn every couple of weeks. The trends are certainly changing towards apartments, but I'd be looking at 2 or 3 bedroom townhouses in small blocks close to transport, eateries, and all that other stuff Gen Ys are looking for these days.
Get yourself a buyers agent. Saving yourself money by not paying for good advice for a potentially life long investment is a bad idea. I used to think paying several thousand dollars for someone's opinion was ridiculous – but even if you pick a unit that appreciates 7% per year, and they pick one that appreciates 8% per year, that's hundreds of thousands of dollars in a few decades time.
Oh yeah, and I second Richard's lecture on structuring your finance and ownership right from the start.
Get reading, get a buyer's agent, and get moving! In my opinion, you're long overdue to get started with the amount of equity you're sitting on!
Good luck with it.
Andrew
Thanks Richard and Steve!
Steve – thanks so much for your thoughts on apartments. We're looking at ones in small blocks of 10 or less as I had considered some of the issues you raised. The issue about valuations with apartments hadn't crossed my mind though so thanks for drawing my attention to it. Our reasons for considering a CBD apartment include lots of cashed up gen ys living in the city and prepared to pay CBD prices; what seems like high (ish) yields; and the trend toward smaller households and more people living alone. Also, we live in the inner north of Melbourne and know the inner city and CBD quite well.
A buyers agent is a great idea. I will look into getting one.
I think you're right about us being long overdue to do this given the equity we have sitting there. I was reading a post from the archives here last night and there was a conversation about financial advisers and the way they convince clients away from investing in property. That's exactly what happened to us 12 months ago. As nice as he was, he quickly steered us to invest in a managed fund (with a small amount of money). I'm happy to have a mix of IPs and managed funds just to keep it all a bit interesting. So now we just need to get the IP part happening!
Thanks again for all your advice! I will make sure our loans are structured as you've recommended.
hi Kyanne
If you are buying into a Melbourne CBD apartment, may I recommend a book by Jimmy Thomson- ‘the ultimate guide to buying & renting houses& apartments. I found this book very helpful with all the new strata regulations, that you will know doubt encounter.I myself am an investor solely in the Melbourne CBD so here is some advice I think you might find similar to your situation.Stay away from the serviced apartments, these lack any long term growth, I personally dislike any building that even runs a small amount these, such as Milano on Franklin street, or 250 Elizabeth st.Also be careful of some buildings that have signage on tops of buildings or something similar, this is great if the Owners Corporation is leasing it (which will lower your fees), but in a some cases the original developer is leasing it and pocketing the money himself. This can be a strata nightmare especially if he has signed a 99 year agreement with the OC. Make sure you check the section 32 to see what is the agreement, if there is even one at all.I can see the appeal in the boutique blocks that are scattered around Flinders Lane and even Little Collins Street to a lesser extent, but I believe these are better bought for PPOR ( or an emotional IP) rather than an good investment property as you will pay top dollar for these but not necessary get the return you would in other buildings. As for a car park, I would say it’s a definite yes! They open your rental market to a whole different market of renters (renters with cars) and they are also becoming a scarce commodity in Melbourne,For me personally I am staying out of the CBD market until at least September and more probably January, as I believe it is slightly over inflated with the FHOG, once the FHB is out of the market and rates rise, we might be able to pick up properties with better cash flow returnsOnce you have taken the plunge into the world of strata, I cant stress it enough that you join the OC, trust me you will be able to save 1000s of dollars if your OC isn’t properly run.If you want to discuss any building in particular, feel free to PM me, I would be happy to give you my opinion on itGood Luck.. and plz don’t bid against me hahaha
Thanks so much for all that amazing info Saka888! Sounds like you've really got it covered re Melb CBD apartments.
Can anyone tell me what most buyers agents' fees are? Eg. I've heard possibly 10% on the purchase price of the property???
Problem is, the majority of apartments seem to be serviced apartments, although there are some new developments being built.
saka888, could you just throw out one example of a non-serviced apartment out there as an example?
Hi Kyanne
Wow certainly nowhere near 10% nearer 2.5% basically the same as a vendor would pay an agent for selling the property.
Some Buyers Agents work on a flat fee other a sliding percentage.
Richard Taylor | Australia's leading private lender
hi
i am a newbie and completely rookie to investing
i want to start building my portfolio by looking at 1 bed or 2 bed apartments in melbourne cbd
but very much confused with lots of questions … need help
why people dont consider cbd 1 bed or 2 bed properties … is it because they dont appreciate ….
what are the pros and cons of cbd 1 bed or 2 bed apts … especially serviced or hotel leased one’s
i have been to some seminars and gone thru net .. but that has confused me more
i have a bit a equity built on my ppor …
i want to use it and borrow the gap to buy 1 or 2 bed within a budget of 200 k max
the ppor is in both my of our names ( me and wife) but I am the only bread winner as we have a baby ….
so cant take a bigger risk … but keen to get into property market so it felt like cbd properties are within my reach …
seen some properties with 6.5 to 9.2% returns but cant understand what will be the outgoings
any possible litigations with these type of investments….
not expecting much capital appreciation but if the ip pays for f or with a bit of positive gearing – that will be great
thanks heaps
sri
Hi Sri
Firstly welcome to the forum and I hope you enjoy your time with is.
One thing to bear in mind with the small units is that maximum lvr that is available to you.
Probably not an issue on a 1 bedroom unit but if studio and less than 40 square metres lenders are going to get a wee bit nervous and ask you to put in a greater deposit.
If you are worried about the risk then one consideration would be to fix the rate on the IP loan.
Lenders have vary criteria when it comes to serviceability so a mortgage broker should be able to crunch the numbers for you to see the best way forward.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
hi richard
thanks for your reply…
i have been thru some posts .. its not been postive about cbd apartments ….
within my budget of 200 – 250 k max …
what else I can look for as a safe bet ….
i have been looking at suburbs like melton ….but cannot decide either go for suburban property or for a cbd one …as I am not much concerned about capital gains but want a hassle free property with decent returns …
where can I find a list of areas where I can invest modest 200 k with decent return and capital gains …
I guess everyone is looking for the same thing however if it is any use to you i have financed dozens of properties for forum investors in Melton this year and not aware of anyone who has had any issues.
If you locate a property and want to email me the street address i am happy to run off and email to you a Residex report which might aid the due diligence.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I purchased a 2 bedroom city apartment in 2008. It was small, but came with a car park. I lived there for a year, then moved elsewhere and am now renting it out.
I found that when it was advertised I got a lot of international student applications. These students are willing to pay top dollar – e.g. the rent they pay covers my mortgage repayments and then some…
So if you don't mind student renters, get something close to RMIT/Melbourne Uni.
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