Investors are often in two minds about buying apartments to add to their investment portfolios. There are those who see the benefits of having diversity in their portfolio with a mixture of houses, townhouses and apartments and then there are those who only buy traditional houses to add to their portfolio. In many cases investors stick to what they know best, however with Australian lifestyles and demographics changing, it may be that buying apartments will have be attractive to many more investors in the future.
Affordability, Demographics & Demand
One of the main benefits is the affordability of apartments as a choice for investors. This means they can afford to get into capital city or major regional markets as the median price of apartments has traditionally been less than median price of houses.
Apartment living has become more popular over the last decade as lifestyle demands of being central to the city or major centres, of being closer to work, transport hubs, shopping, hospitals, universities and the café culture has created a new demand. There are more single person households, more downsizers, more young renters, more professionals, more empty nesters and people in general who are choosing an apartment lifestyle.
Capital Growth and Rental Yields
The population of the major capital cities is growing rapidly and more apartment developments are appearing on the skyline to meet the demand for this type of apartment living in the right urban or city location. Apartments have shown the same trends as houses for capital growth especially in the major cities of Sydney, Melbourne and Brisbane. Apartments need no longer be seen as the poor cousins to houses when buying for capital growth. Also with the changing demographics and increased demand for this type of living, the rental yields achieved can also deliver better outcomes for investors in terms of holding costs and positive cash flow.
Buying apartments off the plan
Many investors see the benefit of buying apartments off the plan to get their foot in the door at a great market price, and to have potential for capital growth by only buying in a rising market, with no holding costs during the 1 -2 year construction phase. These new apartment developments can be very attractive to tenants if they are well built, in a great lifestyle location, have extra facilities and enable easy access to work, shops, recreation areas, university or hospitals and transport options. It seems tenants are very discerning these days and expect facilities like gyms, roof top terraces, pizza ovens, open courtyards, and even tool sheds, and many top developers are including these to attract downsizers, and investors alike.
Positive cashflow on new apartments
The decision to buy new or old apartments can be based on which one has the better cashflow. Investors always prefer a positive cash flow property so they are not burdened with out of pocket expenses. Many investors presume the strata fees will eat into their profit and hence shy away. However tenants will pay a premium for the extra facilities, views, location and designs that apartments offer. However even paying strata fees, the claimable losses from your property include the building and plant & equipment write-offs over 40 years. These depreciation claims on new apartments can give maximum tax benefits to the investor and make what appears to be a negatively geared property into a positive cash flow property after tax benefits.
Other considerations when buying an apartment
- If buying off the plan do your due diligence and look for a passionate and ethical developer
- Location and design needs to satisfy what your target tenant is looking for
- Floor plan and inclusions in brand new apartments can attract premium tenants compared to older less modern style apartments.
- Do your research as potential for oversupply in the short term can happen if too many apartments being built in one suburb
- Buy at the rising stage of the property cycle not in a hot or peak market
Apartment living is now part of the Australian landscape. I have a number of apartments in my portfolio that attract great tenants who are willing to pay great rents to have the pools, gyms, landscaped surrounds, proximity to the beach, employment etc. If you have not considered adding an apartment to your portfolio before, now may be time to consider the benefits.
(Source: Your Investment Property)