With lower price points and stronger rental yields, apartments can be an enticing proposition for many investors, however are they a smart investment option?
The short answer is yes, they can be.
However, when it comes to property investing, the general rule is that land appreciates in value, while dwellings depreciate.
This is why houses or villas generally make a better investment option – because they often have a large land component, unlike some apartments.
Another major downside of buying an apartment as an investment property is that you have significantly less control.
In an apartment complex you are just one of many property owners and therefore represent just one of many votes in the strata complex.
If you own a house, you don’t have the inconvenience of having to consult other owners if you want to make changes.
However, if you are set on buying an apartment there are a number of points to consider to ensure you make the best acquisition.
Firstly, high-rise apartment buildings, especially in the CBD of major cities, should generally be avoided by property investors.
This is because additional supply of high-rise buildings, often with hundreds of extra apartments, can be constantly built in the immediate area and weigh down capital growth of existing dwellings.
Alternatively, investors should seek low-rise, or boutique, apartment complexes in areas where planning rules cap the number of apartment buildings. This will limit the capacity for new supply to be added in the area and will help to support capital growth.
Furthermore, low-rise apartment buildings have a higher land-to-value ratio than high-rise complexes, and therefore are better placed to increase in value.
It’s also important to buy an apartment in a complex with a high ratio of owner-occupiers, as they tend to maintain the property to a higher standard, are less likely to sell and are easily contactable for maintenance issues.
Another key consideration is the additional amenities an apartment complex offers. Pools, gyms, saunas and other luxury facilities might be appealing initially, however these frills often result in higher strata fees for the owner and can reduce net rental returns.
While apartments generally aren’t viewed as a great investment option for all, they can suit some investors depending on their individual circumstances.
As usual though, it’s best to speak with a professional buyer’s agent to ensure an apartment suits your investment plans.