Are Apartments a Good Investment?
Not so long ago there was a belief that it was better to invest in a house or duplex rather than an apartment. The reason being the value of the investment was perceived to be in the land, so investors focused on buying houses where the land value would appreciate for years to come.
However, with the rapidly increasing population, a growing trend of people preferring to live in apartments close to infrastructure and offering great facilities, plus the high cost of buying real estate, apartments are increasing in popularity and proving to be a high performing investment choice.
Here’s a deep dive into some of the key benefits of buying an apartment and some points to consider when making your selection.
Benefits of investing in apartments
Apartments offer an affordable entry point for first time investors. The lower outlay means fewer risks and more investment choices. It also gives investors who are cashed up the opportunity to buy multiple apartments, enabling them to create a diversified portfolio and spread their risk.
Housing Australia’s expanding population
More Australians than ever are choosing to live in an apartment, whether out of preference, convenience or for other reasons. Over the past 25 years, the number of occupied apartments in Australia has increased by 78% according to the most recent census. A trend more prevalent in urban areas within Australia’s major capital cities.
Additionally, the ABS projects that the number of people living alone will increase significantly over the next decade from 1.8 million in 2001 to between 2.8m and 3.7m by 2026. People living alone are actively choosing to live in apartments. Why, because they are often close to urban centres (which is where they want to live) they offer facilities they could not afford in a house and in many instances provide a sense of community and belonging.
So what does this mean for investors? More people wanting to live in apartments means:
- More renter demand
- More choice over who rents your apartment,
- Potential to charge higher rent
- Higher rental yields
- Greater investment security
Mass buyer appeal
Apartments are also popular for a wide range for buyers – for first time buyers, downsizers and other investors. So when it’s time to sell your investment, your buying audience is broader, giving you more opportunity to appeal to the mass market which creates competition for your property and drives the price higher.
Another advantage of owning a unit is that everyone shares the cost of building repairs, maintenance and building insurance. Keep in mind the more facilities and amenities your building has the higher the fees. But with this also comes greater potential for higher future value and the opportunity to increase your rent.
Tips for buying an apartment as an investment
Be aware of the fees
Once a seller hands their property over, you immediately inherit all of the attached council and strata fees.
Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building's owners' or manager. These fees are ongoing costs that will continue to absorb your finances, generally quarterly, even after your initial property purchase payment, so it’s important to incorporate these into your ongoing budget.
Understand the ratio of renters vs owner occupiers
The more central a building is the more popular it will be with the rental market and as an investor this can be positive. However, if the whole block is rental stock, it can affect demand. Tenants have more choice putting the power in their hands to negotiate on the price. Try and find out the ratio of renters to owner occupiers.
Property experts agree that buyers should look for an apartment with light, views and practicality. In addition to that buyers should avoid units with no outlook or those that look on to air conditioning condensers or a solid brick wall. If you own a property like this expect the price to allow for this negative as many buyers won’t consider this aspect no matter how cheap.
What level is best?
Experts also suggest not paying a huge premium for apartments on higher floor in high rise buildings. Many renters and future buyers don’t like being over the 5th or 6th floor. Whilst young professionals may love a view from up high – they may not love being blown away every time they step outside.
If you’re looking at an apartment in a quieter suburb, your tenants will most likely be young families or empty nesters. These tenants often look for easily accessible but safe, smaller apartment blocks with a unit of the first two floors.
Whenever possible you should buy an apartment with a balcony or terrace and ideally ensure it is big enough to put a table and 2 chairs. It offers a huge bonus to the people who live there and makes your property more popular for renters and buyers down the track.
Apartments are becoming increasingly popular in Australia and if you’re careful with your investment selection and pay the right price they are very popular with renters and can pay dividends in the future when you go to sell.
There is a whole generation of people leaving home or migrating to Australia who are looking at apartment living as their preferred choice. Buying an apartment as an investment is as safe as houses – if you buy the right one.
Thinking about buying an apartment? Make sure you download our free Open Apartment Inspection Checklist, it'll walk you through everything you need to look out for when inspecting an apartment to make the process as easy and stress-free as possible.
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.