Hi Jenny,
If you're looking to buy in three years there will be quite a bit more stock on the market with many new developments settling. It's great you're looking at your options, however I would suggest steering clear of studio apartments unless all you're looking for is a good tax return.
The fees you've quoted are extremely high for a small studio – does the building have a pool & gym? If not, that's an exorbitant amount.
Also please be aware that agents quote a maximum gross return and also take into account a possible drop in the market when doing your figures to stick on the safe side. If you'd like me to value the property from a rental standpoint to ensure you're being quoted the correct figures, please feel free to contact me.
Agree with comments above, you need to go with what suits you but the studio you're discussing is in most books tiny – you're likely to only have low-quality tenants who can't afford better and in turn could end up with late rental payments or damage to the property. Quality properties attract quality tenants.
Thanks Everyone for the insight.
So studios don’t sound like a good investments. My next option was serviced apartment, as all the costs are paid for by the hotel management. The only things I were afraid of was that they would constantly demand me to uplift/renovate the apartment, otherwise they would not extend the lease option, which means I would forever have to spend big money to keep the apartment flashy else I’d lose the lease. I have yet to do some more research.
Kristin, thanks for the offer. I will hang on for the time being. And yes, the studios I were looking at did have a gym and all the buildings have 2 lifts.
Regards,
JennyJenny I have to say that Service apartments have more risks.
And it’s with commercial loan not residential.If you have limited budget, why don’t you go regional towns to have a look?
You will be surprised!I've sold one of our serviced apartments recently, if you'd like more info on how they work please feel free to contact me. As they are commercial leases the tenant is responsible for maintaining/updating the inside of the premises and the landlord is responsible for the building only which is usually under an Owners Corporation. You can get cash flow positive options in serviced apartments, but as mentioned above, it is a different kind of property with low capital gain.
jenny111 wrote:Thanks Everyone for the insight.So studios don’t sound like a good investments. My next option was serviced apartment, as all the costs are paid for by the hotel management. The only things I were afraid of was that they would constantly demand me to uplift/renovate the apartment, otherwise they would not extend the lease option, which means I would forever have to spend big money to keep the apartment flashy else I’d lose the lease. I have yet to do some more research.
Kristin, thanks for the offer. I will hang on for the time being. And yes, the studios I were looking at did have a gym and all the buildings have 2 lifts.
Regards,
JennyServiced apartment is a worse investment than studios. As Lisasun has suggested try expanding your suburb search criteria.
Shahin Afarin – Property Finance Consultant
http://elitepropertyfinance.wordpress.comTheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
I agree serviced apartments are worse than owning a studio apartment, you have very little control over them and they have higher management costs. I would steer clear of them.
Have you looked in the outter suburbs Jenny? if you are after cash-flow (thats the vibe Im getting) you might get a better net yield in the outer suburbs, you will have more control over the asset and property is generally easier to finance than some of the property types you mentioned.Phew!…. Lucky I asked!
Your point is taken – steer out of serv apartments. Being a commercial loan is also another reason I don’t want to get into.
So, regional investment properties? Yes, they are also on my research list. Looking at the price, they seem to be cheap – very cheap in fact, to the point that I doubted myself: well, if these houses are so cheap, then everyone will be able to afford/buy – why bother renting? Which means I will definitely have difficulty renting them out. Also the rental yields aren’t as high as CBD studios. Regional properties seem too far and feels like out of my control, whereas studios are closer to where I live and this is probably the reason why I felt more comfortable with studios.
But now having crossed off studios and serv apts, regional properties are certainly of consideration. Don’t people just buy them to own – I mean why rent when regional properties are so cheap? What sort of property management fee (percentage of rental), do agents charge for managing regional properties? Do agents tend to take advantage or short cuts in managing the property because the landlord is far away? And how do investors generally feel about owning investment properties that are far away from where they live?
Thanks.
jenny111 wrote:Phew!…. Lucky I asked!Your point is taken – steer out of serv apartments. Being a commercial loan is also another reason I don’t want to get into.
So, regional investment properties? Yes, they are also on my research list. Looking at the price, they seem to be cheap – very cheap in fact, to the point that I doubted myself: well, if these houses are so cheap, then everyone will be able to afford/buy – why bother renting? Which means I will definitely have difficulty renting them out. Also the rental yields aren’t as high as CBD studios. Regional properties seem too far and feels like out of my control, whereas studios are closer to where I live and this is probably the reason why I felt more comfortable with studios.
But now having crossed off studios and serv apts, regional properties are certainly of consideration. Don’t people just buy them to own – I mean why rent when regional properties are so cheap? What sort of property management fee (percentage of rental), do agents charge for managing regional properties? Do agents tend to take advantage or short cuts in managing the property because the landlord is far away? And how do investors generally feel about owning investment properties that are far away from where they live?
Thanks.
Hi Jenny111,
Don’t be disillusioned by the rental yield. Rental yields will not make you money. Capital Growth is what you should be focusing on. It is the best way to help fund future and ongoing IP purchases. That said, it is important to purchase properties which can be rented strongly. By strongly I don’t mean high rental yields but more the demand. Areas outside the CBD are the way to go but you need to do plenty of research. Talk to buyers agents and talk to real estate agents. When looking for properties try and think of how you can add value to help with capital growth. How? Properties that you can renovate, extend (up, down, left, right) and develop (or at least get DA). Finally get a few scenarios in place to help you distingiush which strategy will work for you. Always think long term and never think short term.
Shahin Afarin – Property Finance Consultant
http://elitepropertyfinance.wordpress.comTheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Thanks, TFC.
What is ‘DA’ when you said ” When looking for properties try and think of how you can add value to help with capital growth. How? Properties that you can renovate, extend (up, down, left, right) and develop (or at least get DA).”
Cheers.DA = Development Approval (something you get from Council)
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
re: "Don't be disillusioned by the rental yield. Rental yields will not make you money. Capital Growth is what you should be focusing on".
This is true if the Capital Growth occurs… because, say for instance, a 5% growth on a $300k property is $15k. This is probably a bit more than the place rents for annually.
However, remember that Capital Growth is not a given and should not be relied upon. While you are waiting to see if you get the cream on the pie (otherwise known as capital growth) you need rental yield money to help you hang on to the property.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Jenny111 – you must be so confused!
There are many ways and strategies to use in property investing.
Perhaps its a good idea to sit down and think about what it is you are wanting to get out of property.
You have posed some great questions here – and questions that dont often get asked – are overlooked until the ink is dry on a contract – then comes the hard part – getting finance for that tiny apartment.
Sounds like you have great ideas.
I think in answer to your question as to why do councils approve small apartments -is that there is demand. There are many students in Melbourne having 2 or is that 3 universities -all close – and = many over seas students.
Also demographers are saying we are changing the shape of our families – and some retirees like to down size to something smaller – maybe not to 16sq m but they pay more for smaller places once the kids have moved on.Everyone wants capital growth but, its the cash-flow hand in hand with capital growth that allows you to keep projecting into other IPs. You can have all the equity in the world if you don't have serviceability to get the next loan its not much good (unless you are going to sell to realise the gain). a real life example: my wife an I a few years ago were holding 8 IPs, it was a negatively geared portfolio, even with capital growth I was struggling to get a small LOC let alone another bank loan to get another IP. (I have since restructured it to cash neutral)
Jenny don't under-estimate cash-flow, without strong cash-flow (neutral to positive) you will eventually hit a wall with serviceability
Thanks WomeninProperty and Ten_Burner. All points taken.
And you are right! At times I do feel confused – probably more afraid than confused. Afraid because I don’t have a lot to invest and this was why I wanted something that was easy to get into (studios, serviced apartments and perhaps regional properties). The first 2 have hardly any capital growth, but are convenient and provide good cashflow – but the big downside is the body corporate and management costs keep increasing significantly that I am afraid if the place is untenanted, I won’t be able to afford on-going expenses. I am still researching regional properties – they don’t have the convenience in that I could visit them as quickly as the CBD studios/serv apts etc…; however regional properties don’t have high body corp and management fee. Cashflow wise, regional properties are not too far from studios.
If I want to research whether a regional area is growing, or whether there is any infrastructure expansion plan, where would I start, please, anyone? Thanks.
Regards,
Jenny111.
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