Like all investments, there are certain risks involved with purchasing apartments, but some may not be as obvious as others.
There are a number of underlying risks that investors are not aware of that could end up affecting vacancy rates and rental return potential.
Apartments are too small
Studio or one bedroom apartments can limit profit potential for investors for a number of reasons. Although a studio or one-bedroom unit may cost less to buy, they are usually more expensive to rent for just one person. It is usually cheaper for people to rent two or three bedroom places together and just split the rent.
Also, if you only have one bedroom, it will limit the potential tenant pool significantly. Your apartment may be suitable for singles and couples, but it will most likely be too small for families and friends who want to live together.
When you’re out apartment shopping, take notice of the area surrounding the building. This can give you an idea about the type of people living in the area and what type of housing will be more in demand. A university nearby may indicate there is a demand for smaller apartments as students will be more likely to choose a studio or one-bedroom apartment, whereas if the suburb has a number of schools and day care facilities there will most likely be more families around.
High rise buildings
A unique selling point plays a huge part in the property market when there are dozens of investors trying to attract the ideal tenant.
High rise buildings can be limiting for investors as the apartments are not unique and if there are multiple apartments that look exactly the same up for rent, it will be harder to set yourself apart from the rest. So, when looking for apartments to purchase, try and aim for smaller blocks with less apartments and less floors.
Off the plan
There are both pros and cons when it comes to buying off the plan and it will come down to the property and the direction of the property market.
Buying off the plan is when you sign a contract for an apartment that has not completed construction. You are can see the plan for the design, but you are not usually able to physically go and see the property. Buying off the plan is a good way to get into the market with minimal upfront costs, however, if the market turns and the property begins to decline in value, you may not see as high of a return as you had hoped for.
In order to avoid this happening, you need to get an unbiased assessment from a professional valuer about the property’s current value and also do your research about where the property is heading. It may also be worth getting a reliable professional to provide this research too.
Ground floor apartments
Tenants will have different preferences when it comes to choosing what floor they want to live on. Some may prefer the higher levels as there are better views and some may prefer the lower levels as it has easier access to the building entry and exit.
When it comes to choosing a floor when buying an investment, you need to think about the risks involved with each floor. The ground floor is sometimes seen as riskier for a number of reasons.
• Noise levels: Being close to the ground means tenants may have more street noise as well as noise from the units above.
• Security: It is a lot easier for people to access the lower level apartments compared to the upper levels and, depending on the neighbourhood, tenants may feel safer living in a higher apartment.
• Privacy: Living on a higher level not only means you may get a better view, but you will have more privacy. If you live on the ground floor, more people will be able to see into your balcony and apartment.
If you are thinking about purchasing an investment property, State Custodians can help you. Our Lending Specialist team can discuss our array of home loan features with you one on one. Give our team a call on 13 72 62 or they can contact you if you leave your details here.