Hi,
I have a few questions regarding apartments as an IP. From reading the forums it seems that the majority of investors with a strong property portfolio seem to steer away from apartments for various reasons. Thus I am hoping to get some first hand, honest response from apartment investors who have both successfully or unsuccessfully grown their portfolio on a string of apartment purchases.
– Do apartments really go up in value or are all the capital growth reports and charts obscured by the sale of new, higher priced apartments? It seems that investors having CG on their apartments are few and far between in the forums.
– Is it a smart idea to buy a new, OTP apartment or would I be paying the premium for something new? (Kinda like buying a new car vs 1-2 year old second hand)
– Is it good to purchase a new apartment in an area that has a lot of new apartment developments? The area that I am currently considering is Fortitude Valley in QLD and so from what I have read there will be a demand; however I am somewhat worried about that the influx of constructions may result in an oversupply. http://brisbanedevelopment.com/boom-time-for-fortitude-valley/
Thanks guys!
Hi there
OTP has some risks that need to be considered – the most important being the ability to finance the deal.
Given that the lag time between "exchange" and "settlement" with OTP is quite long, you can't apply for finance until closer to the settlement date. At that point, if there's a change in your circumstances that prevent you from obtaining finance – you're in trouble. If the valuation comes back lower than purchase price – you're in trouble.
OTP can work -and I've seen it work a lot in the ACT over the last few years when the market was consistently rising – investors in this market achieve decent returns for little outlay. Times are a bit different now (in my neck of the woods that is), there's an influx of development and prices have stagnatated a little. I can't speak for the OTP market in Brissy but I wouldn't be purchasing OTP in Canberra right now.
Generally speaking, you do pay a premium for new, OTP stock and I wouldn't be keen on buying into an area with a lot of development. When supply outstrips demand – the price needs to come down.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Apartments do go up in value. But when you think about it the land content in apartments is small as you have so many unit owners on the one block of land. So most of the cost is building cost and what happens to buildings as they age – they depreciate.
Now also consider all the strata issues. The lack of control. One of my friends owns a strata unit in the city and he was complaining about the outrageous prices they pay for everthing such as $2000 to replace a bent hook for a punching bag (that someone was swinging on). If you are on of many you have no control and will be outvoted.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the replies Jamie & Terry.
I guess I should try and steer away from OTP and apartment investments. I know that no matter what strategy you follow there will be people telling you it can’t be done, which was why I wanted to hear from and mimic those who have been successful with OTP apartments. But the sheer number of reputable people on the forums giving that same advice seems to completely outweigh those in favour of OTP and/or apartments.
Also was recommended the OTP apartment by a Property Marketing Company called Blue Wealth. There doesn’t seem to be too much history on Bluewealth that I can find on this forum or on Somersoft’s, but the general consensus seems to be to steer away from PMC altogether.
Anyway I really appreciate your responses Jamie + Terry!
Hi FT
I developed a block of units in Bowen Hills (top of the roundabout) and ended up keeping one of them.
Cost me around $192,000 in 2004. The same unit which well over 130 square metrest with City views is worth $500K + so Yes second hand units in and around Fortitude Valley do go up.
Personally i would probably look at New Farm / Bowen Hills where you can get some realistic comparison sales.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Ok Thanks Richard,
I think for now I will probably stay away from high rise apartments and try and focus on houses and possibly town houses.
I have a few general question regarding investment that maybe you guys could help me with.
– What are your opinions in investing in a house close to Brisbane? Say roughly within a 6-7km radius of Brisbane?
– What are your opinions on Western Sydney vs Brisbane homes in terms of capital growth? I have been pondering whether to purchase a cheap home in Western Sydney or Brisbane but based on the stats below, Brisbane seem to be a better area:
1) density / sqm and growth (RPData)
2) income, (RPData)
3) historical house capital growth (RPData)
– Other than the 3 indicators above, plus infrastructure spending, are there others I should be on the lookout for? And where would be able to obtain that data?Thanks
If it is a matter of dipping your toe in the water i think i would be looking at Western suburbs of Sydney.
Certainly financed more than a few forum clients in the last few months who have purchased IP's in that part of the globe.
You wont find anything cheap in Brisbane 6-7 kms out of the CBD and certainly nothing that will be neutral or positively geared. Going to have to go out a lot further for that.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
@ FirstTimeInvestor,
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I find OTP apartments to be very risky but some can be worthwhile, I unfortunately missed out on a great offer back in late 2010 with brand new 2 bedroom apartments in Kingsford being sold OTP for $460,000.. they are now being rented out for $520 per week and their resale is up by about $60,000.
Where there is demand there will always be CG. If the area you are looking at is constantly being developed or well sought after for being close to the CBD or even just for location, there will be capital growth – in Sydney that's what I noticed anyway.
You should look out for things such as; risks of investing in such developments (research about the area and past developments), strata (like Terryw said, some are outright ridiculous) and you will often have to fork out 20-30% sometimes even 40% deposit to buy one.
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