Purchasing an apartment can be a great long-term investment, particularly for first-time investors looking to break into the market – if you buy diligently and avoid these common traps.
Blogger: Shane Kempton, CEO, Professionals Real Estate Group
The start of the new financial year is traditionally one of the busiest times for apartment sales, as many investors buy apartments after visiting their financial adviser.
Purchasing an apartment in a prime location can be a great long-term investment, delivering both strong rental returns and high levels of capital growth. However, there are a number of common traps first-time investors should try to avoid when buying an apartment, including these listed below:
1. Buying the wrong type of apartment in the wrong location. For example, buying a three-bedroom, two-bathroom apartment in an area where the demand from tenants is for one- or two-bedroom apartments.
2. When buying off the plan, not checking the track record of the developer to ensure they will deliver on what they are promising in terms of quality and completion time.
3. Not checking the actual size of the apartment properly. When buying an apartment you are paying for the actual square metre, so every square metre has a value.
4. Deciding to buy an apartment close to their owner-occupier home rather than looking at investment opportunities throughout the metropolitan area.
5. Selecting an apartment based on advice of friends or family rather than seeking independent information.
6. Buying an older apartment, which can drain your finances through maintenance costs.
7. Selecting a complex with a very high level of investor owners. The greater number of owner-occupiers in the complex, the more likely the complex will be well maintained.
8. Not undertaking a full assessment of the true cost of buying and holding the property. For example, if the property is an apartment, there are additional cost issues compared to buying a stand-alone house such as strata fees. Purchasing an apartment with very high strata fees will eat into the cash flow of the owner.
9. Selecting the wrong home loan, i.e. principal and interest rather than interest-only (which will help increase cash flow).
10. Buying an apartment in a location that is not attractive to tenants, i.e. not close to amenities like shops or transport.
11. Purchasing an apartment in an area where there is an oversupply of properties, meaning rents will be low and capital growth rates limited.
12. Trying to select the tenant themselves rather than using the services of a number of reliable property management companies.
13. Buying an apartment with the view to a quick return rather than viewing it as a long-term investment and stepping ladder to purchasing a portfolio of properties that will fund their retirement.