Apartments Good Investments?
December 4, 2009 by Jeff Royle
Filed under Investing
Renting out houses as investments make pretty good financial sense over the long term (house prices tend to double in price every 8 to 10 years) but what about Apartments?
Firstly you have to ask yourself, what am I investing for? Is it long term capital growth or short term income from rent? Generally speaking older people invest for short term income rather than long term growth, fotr obvious reasons!
Apartments typically aren’t decent capital growth investments, this is because property prices often reflect the cost of land and thus this land cost is not reflected in the cost of the unit itself. Developers are pulling out all sorts of ways to sell apartments as well as ‘rent guarantees’. Whilst this may sound good, think about what happens after the rent promise runs out. Also will the company offering the guarantee still be in business to pay out? Most Real Estate agents know that these guarantees are simple marketing ploys and tend to reflect the limitations in the Apartment market.
Also, think about the mortgage financing for Apartments, it is tricky with most Banks not going over 60 or 65%. This might be OK for you, but think about your potential buyer a few years down the track?
Aside from not owning the land itself, another factor is the possibility for oversupply. Developers can effortlessly erect a block of new Apartments quickly; therefore diluting the potential market. The old rule of supply and demand quickly kicks in, and as an individual you have very little or no control over it.
The above coupled with high Body Corp fee’s and maintenance issues means Apartment buyers need to think twice before making the move. In terms of rental return I would say around 7% warrants a house purchase but nearer 10% is needed for Apartments.
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