Buying based on personal taste could limit capital growth and deter potential tenants.
Part of the fun of real estate investment is searching for the right property to buy. But allowing yourself to be guided by personal preference or taste could have a big downside.
Some investors – particularly Gen Ys and Gen Xers – are attracted to apartments in converted industrial buildings in the inner city, for example, for reasons that suit their current lifestyles. When it comes to reselling these urban lifestyle “spaces”, though, the pool of potential buyers is limited.
Typically, many of these conversions have unconventional floor plans that don’t appeal to a broad spectrum of prospective buyers. According to property investment advisers, many older buyers are simply not interested in warehouse-style apartments.
Other pitfalls to watch out for include small amounts of open space or high owners’ corporation fees, especially if there are concierge services and lifts to be maintained.
These are all factors that can limit capital growth and reduce the pool of buyers or investors interested in this type of property.
Other types of niche properties also have limitations.
“If you buy a niche property – including serviced apartments, resorts, student accommodation and seniors’ accommodation – you should do so only if the purchase price is similar and comparable in value to the cost of a standard residential property in the same area,” says Margaret Lomas, chairwoman of industry group Property Investment Professionals of Australia.
“You also need to ask: is it big enough and serviceable enough to turn into a standard residential property if the original purpose fails? If the property has one purpose only and that fails, you are up the creek without a paddle.” Experts uniformly agree that to achieve strong tenant and investor demand, you should focus on buying houses and conventionally designed apartments. Both these types of property have the widest appeal in the rental market.
Monique Sasson Wakelin, managing director of Wakelin Property Advisory, recommends seeking out apartments in quiet residential streets away from any commercial or industrial activity but close to amenities and recreation areas. A property’s appeal increases immeasurably if it is close to a park, an entertainment and restaurant strip or a university.
Ms Wakelin strongly advises her clients to steer clear of the large apartment complexes being built to house overseas students in areas such as Carlton. High tenant turnover, costly maintenance charges and a likely oversupply of student apartment buildings are all negatives, she warns.
“When there are hundreds of units in a complex, that’s not a scarce resource and property is all about buying a scarce resource that is not readily replicated.”
There’s another danger, warns Ms Lomas. Small student apartments of 50 square metres or less have a limited capacity to be reconfigured into a residential property that is acceptable to most potential tenants. And, more importantly, she says: “The banks don’t like these apartments and they won’t fund them in the main.” Even if you do get a loan, macroeconomics could effect resale value. Melbourne and several other capital cities will soon be oversupplied with student apartment buildings, Ms Lomas says.
“There are far too many of them going up,” she adds. “It only takes one downturn in China or in one of our Asian markets for the wealthier Chinese to stop sending their children to Australia to attend our universities.”
Look for light and logic in the layout
If you’re evaluating an apartment or a house for purchase, look for lots of natural light and a logical floor plan.
Buyer’s advocate Monique Sasson Wakelin explains that a logical floor plan makes it a simple task to walk through the dwelling and creates a line of sight between the living areas, the walkways and through doorways.
The floor plan should keep bedrooms and work areas such as the laundry, separate.
There should be a natural flow to the layout of a house or apartment and no wasted space, Ms Wakelin says. A good floor plan lets plenty of natural light into the property, particularly to the living areas: “This is important as dark houses and apartments tend to be shunned by tenants and buyers.”