Arnold
CibbuanoHousing or Apartment Investments – Rental returns and ongoing costs
September 12th 2006 00:29
Welcome the the second part of comparing the decision between investing in a house or apartment property.
Rental Return:
Apartments and housing will generally raise an equivalent annual rental rate of return. This is generally about 4% of the value of the property. New inner city apartments are often sold with a one year rental guarantee to entice investors. The carrot is that in the short term the investor is guaranteed a rental income from the property during the first year of purchase. This may be an attractive offer, however, it is rather short-sighted.
For a start investing in a new development usually attracts a premium pricing figure. This is much like buying anything that is brand new, cars, boats, clothing. As soon as you walk out of the shop, you can immediately wipe off a percentage from the re-sale price. Property is somewhat different in that it will generally appreciate with time but it is not uncommon for new developments to suffer a short term depreciation in value soon after they have been sold off to investors.
On the other hand, some new developments have attracted fantastic short term investor returns. Newer developments in Sydney’s Kings Cross have attracted sound returns for short term investors that purchased into new developments that started popping up in the area a few years back. Sydney City Council has started to invest into public works that service the area and the dangerous image that the region once had is beginning to get cleaned up. People that had bought into the Rex Apartments and other newer developments have resold a year or so after purchasing and timed the demand for their apartments perfectly.
Maintenance:
Ongoing maintenance requirements can dig into the capital growth of your property. This is a trap that many investors fall into when they buy into a property with the intention of doing some major DIY renovations which end up requiring expert assistance. Some will fall in love with a period style house and purchase more with their hearts then their heads. A smart investor must make sure that their investment does not turn into a money pit.
The advantage of houses over apartments is that as the owner you have some degree of control over how much money is reinvested into the property, what it is invested into and when it is invested. Apartment maintenance is organized by a body corporate organisation. Fees for a body corporate can reach into the thousands of dollars annually for an inner city apartment. The body corporate will determine what common areas need maintenance, how much money it will require and when it is to be done. The more bells and whistles included in the property, the greater the body corporate fees. Lifts, swimming pools, gyms, saunas, concierges are great mod cons but they are notorious for attracting huge body corporate fees.
Anyone who owns an apartment should ensure that the complex has a sinking fund which is regularly contributed to by the owners. The sinking fund is a fund which is put aside to pay the cost of any significant repairs that may be need to made to the building at short notice.
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