Investing in an Apartment versus a Home
Matt duBois
“I help companies optimize their $100K+ travel spend, eliminating waste and increasing operational efficiency. Here’s how I help my clients eliminate those losses”
The choice of buying a home versus an apartment as a future investment, historically has focused on finances, transport arterials, local beaches, parks and whether or not the owner wanted an area of land to cultivate or the satisfaction of walk-in, walk-out living. In effect it focused on limited financial buying options.
Move forward to January 2022 and the reality is there has been an ever-growing percentage of investors and first-time buyers capitalising on apartment living to grow their property portfolio, year on year growth and residual income.
Additional advantages being lower overall costs (yes even with Strata), freeing up capital for travel, investment or lifestyle choices, as well as taking advantage of improved apartment living amenities; retail shopping, gyms, café’s, secure parking, pools and access to beaches, city-life, transport links and more.
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Given the dramatic increase in house prices year on year (contact me for your suburb) and for those missed opportunities stepping onto the property ladder or upsizing from their existing home, there is a growing trend of two groups of people:
Benefits of Investing in Apartments
1.??Affordability
Apartments provide the perfect opportunity for a first home buyer to step onto the property ladder, likewise they meet the needs of most demographics; whether searching for a 1 – 4 bedroom apartment, ground floor to penthouse, open plan to set rooms, secure parking to allocated space, suburban, city or coastal living.
Likewise, apartment living meets both buyer, investor and downsizer requirements at a price-tag which fluctuates less than a home and provides a stable income to a pre-qualified tenant. The lower outlay comparative to a house purchase means reduced financial risks and greater investment choices.?It also gives ‘?ashed-up’ investors the opportunity to buy multiple apartments, diversifying (or building) their portfolio and spreading risk returns across a balanced approach.
2.??Housing v Apartment living in Australia
More and more Australians are electing to live in an apartment, whether out of preference, convenience or for other reasons, than homes. Over the past 25 years, the number of occupied apartments in Australia has increased by 78%, according to the most recent census by Australian Bureau of Statistics. ABS also projected that solo-residency would increase significantly from 1.8mil in 2001 to between 2.8mil and 3.7mil by 2026. As one might imagine, people living alone are actively choosing to live in apartments as they offer a reduced financial commitment, the freedom to access city, beaches, outdoor recreation lifestyles and provide ironically a sense of community belonging.
From an Investors perspective, this provides the opportunity for greater certainties over:
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3.??Apartment Buyer Attraction
As discussed, apartments meet the brief for first time buyers, downsizers, investors and solo-residents. What this means is that when an apartment owner is ready to sell, their target audience is far wider than the traditional home owner. Apartments meet both financial, mental, emotional and physical requirements for a broader demographic in more flexible locations ensuring faster turnover amongst a larger buyer competition base.
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4.??Building Management
One advantage to owning an apartment, is that all owners share the cost (Strata) of building repairs, maintenance and building insurance. Naturally, the more facilities and amenities your building has, the higher the Strata fee, with additional amenities however comes a greater potential for added sales value and the opportunity to increase rent.?
Investment Tips
1.??Building Fee’s
Clarity is your Only Focus. Before signing, it is imperative to know precisely what costs are attributed to Strata, Insurance, Council and any additional rates. Be clear on whether these are quarterly or annual, as well as any potential ongoing costs requiring forward planning and budgeting eg. lift maintenance.
2.??Tenants versus Owner Occupier Ratio’s
Knowledge on the percentage of owner-occupiers to tenants will assist in determining the culture or ambience of the building your investing in. If we think along the lines of economies of scale, then the greater the percentage of tenants, the less chance of increasing rent due to greater supply within the building and opportunity for an alternate apartment choice.
3.??Light Orientation
Natural light makes or breaks a home. Dark apartments are less likely to lease and rent quickly, even with additional mirrors and well-placed internal lighting to brighten the space. Whilst all investors want for a north-facing, scenic or uninterrupted view, in a quiet location; maximising light direction will always raise demand within the rental market and increase competition across the buyers market. Where the apartment is westerly facing or doesn’t have a lot of air-flow, plants help reduce heat not only through shading, also by circulating existing air and amplify air conditioning cooling and comfort of the unit.
4.??Outdoor space
Outdoor living allows a tenant the mental freedom of movement, rather than feeling like they are confined to a small space (even large apartments can feel like confined spaces). It also allows for inviting the outdoors in and can create an appearance of extending the apartment living space. Whether a ground floor courtyard, garden or balcony apartment, this is where both plants and outdoor seating/ entertaining accentuates the feeling of the apartment and lends itself to attracting a higher rental fee and/ or sales price. Outdoor space focuses entirely on atmosphere and comfort. If a tenant feels comfortable, then demand increases, where not, then rent reduces with less people and potentially a reduced quality of tenant, declines.
Always bear in mind, the focus of an investment apartment is return on investment. However you may maximise this through indoor-outdoor space, air flow, light direction, accessibility, amenities, security and maintenance bearing in mind overheads and forward growth values; the better. All of the above falls into your business plan; an investment is a business and need be treated in exactly the same way as recruiting a team, maintaining the business, planning forward (incl failing forward) and engagement. An apartment which seeks a tenant to pay and fend for themselves will always increase the probability for a reduced quality of tenant just as a business which recruits and leaves the team to fend for themselves, will always reduce the forward potential for the business.
How are you planning your investments for 2022
Given all that is occurring across the property and financial markets, how are you maximising your resources and the equity in your existing home or your desire to purchase a home.
Whatever your criteria, it would be a pleasure to assist, call anytime, if it matters to you, it matters to me.