Real Estate
Apartments Good Investments?
December 6, 2009 by Jeff Royle · Leave a Comment
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?
Initially, you have to ask yourself, what am I investing for? Is it long term capital growth or short term income from rentals? Usually, older individuals invest for short term income rather than long term for obvious reasons!
Apartments generally do not make good capital growth investments as historical property prices have in fact reflected the price of land and as an Apartment owner, this land price is not reflected in the value of the unit itself. Developers are using all sorts of tactics to sell apartments at present such as ‘rent guarantees’. It is worth thinking about what happens after the rent guarantee runs out and if the figures don’t add up then, they most likely won’t add up now. Also will the developer offering the guarantee be around to follow through on it? Most Real Estate agents know that these guarantees are a marketing trick and tend to reflect the flaw in the Apartment market as a whole. (Why offer something when you don’t need to?)
In addition, think about the mortgage financing for Apartments, especially with most Banks not going over 60 or 65%. Whilst this may be OK for you, think about your potential buyer a few years down the line.
Apart from not owning the land, another factor is the potential over supply. Developers can easily put up a block of new Apartments, quickly and therefore further diluting the potential market. Old rule of supply and demand kicks in and as an individual you have very little control over it.
The fact above together with steep Body Corp fee’s and repair issues means that Apartment buyers will need to cautiously think before making a purchase. As for rental return, around 7% would warrant a house purchase but near 10% is required for Apartments
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categories: good property investments,good property investing,apartment investing,housing market,apartment investments,property investments,housing investments,apartments,building,housing,property
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