Hey Everyone, great forum you have going here, very informative.
Obviously every area is specific but are their any general thoughts and rules about looking to buy medium density apartments (8/12/16 unit blocks) vs those on the higher density end of the spectrum?
Doing my research the newer, higher density places seem to have higher strata costs but also better rental returns. This is in comparison to the medium density apartments which have lower strata and lower rent returns. Both seem to be REASONALBY similarly priced (obviously there are exceptions). Are these general rules of thumb through-out the entrie market or is it an area to area thing? I would have thought the high rise apartments would be far dearer than their medium density counterparts?
For those who know the area, I'm comparing st leonards with wollstonecraft in the lower north shore of sydney.
The thing you need to be careful about with high density is this:
There will be heaps of apartments just like yours. This increases the chance that a few of them will be on either the rental market or the resale market at once. Either way, all it takes is just one landlord or owner to reduce their price and bam, everyone else will have to. Additionally, when there is heaps of the same product, you have a lot to compete against.
for all these reasons, the general rule will be that high density is more risky on the capital growth front.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
From a Investors point of view—
High density are normally located closer to the station, shopping centers and amenities ( council regulations – you wont see any high raise in the middle of the suburbs….) so that means they are located in better” postions” = higher rent = better returns.
But due to it’s size , there are def more maintenance issues as you would expect with a larger building ….more ppl, more lift and more traffic = more maintenance+ high density = more competition in the market place, with the same unit deign and location.
From finance point of view—
Med density you can def leverage a lot more- ie borrow above 80%– up to 95% in some cases. = better capital growth potential.
High density on the another hand has a max LVR of 80-90% depending on the size…most of the time it be capped at 80% = less range of buyers = capital growth will be dependent on the growth of the area and location ..rather then the unit itself ; but def better rental return because of the lack of growth.
Both type of apartment plays a different role and suits different type of investors; i personally have a IP that’s in a high density building ( Sydney CBD) ; i would consider it as one of my best buy- 8% rental return + steady capital growth + strata is expensive but the rental return is enough to absorb most of the cost.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
C.F. wrote:newer, higher density places seem to have higher strata costs but also better rental returns.
This is in comparison to the medium density apartments which have lower strata and lower rent returns.
Are you comparing gross or net rent returns?
When looking at rent returns gross only provide a ball park figure – net returns are more definitive and informing.
From a tax depreciation point of view –
The larger the unit development then the greater deductions will be available throughout common areas. As the complex possibly contains swimming pools, saunas, gyms, lifts, underground car parking, storage etc all of which you are entitled to claim a percentage of. In comparison to a medium sized development which may only contain common walkways, light fittings and a car port or garage.
As you look to purchase higher up in a unit complex understandably the construction costs get higher meaning your capital allowance claims (building write-off or Div 43 deductions) are higher as a result. Taking this into consideration may mean that instead of being able to claim approx $8,000 in the first year on a unit in a medium density complex compared to $12,000 in the first year on a higher density unit for the same purchase price.
The higher the depreciation deductions the less money this investment property will cost you week to week.
Just some food for thought…
It depends what you want out of the property — cash flow or capital growth. If you plan on holding onto the property for a long period of time then a newer higher density apartment might not be that bad (if the rent return is good). As others have said, if you’re buying for capital growth, it might take a while as there will be many other apartments for sale which will keep the costs down. I’ve experienced this in the high density apartment I’ve bought — great rent return (much better than any medium density in the same area) and great for depreciation, but has not had much capital growth at all.
I don’t plan on selling it though, so this isn’t an issue for me.
Cheers
Matt
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