You will undoubtedly encounter opposing schools of thought as you follow the well-travelled path to property investment. It might be challenging to sort through the chatter to discover the truth because there are practically as many alternative theories as there are apartment buildings.
Others may view a risky move as wise; the important thing is to be aware of them and take the least amount of risk possible.
Some of the risks associated with buying new apartments are:
Small apartments
Some industry professionals advise against buying studio or one-bedroom flats for investment purposes, claiming that a smaller home may have less potential to add value and, as a result, have limited capital growth. According to them, the buyer market is also small, which puts a lot of pressure on the property to generate high rental returns.
Before choosing between a smaller or larger apartment, you should take the demographics of the local rental market into account. Instead of choosing to reside in the family-oriented suburbs, students situated around university nodes and temporary workers in major city regions are more likely to choose studio and one-bedroom flats.
Oversupplied unit market
An oversupplied market should be avoided for any real estate investment. Particularly in some areas, apartments frequently approach their capacity. Determine the future course of the local market by taking into account the relationship between supply and demand. It may be a clue to avoid the region if you observe numerous apartment complexes growing from the ground and under construction.
You’ll be well-positioned to reap the rewards if you search for areas where the demand for rental units outpaces supply. Consult local sales representatives while analysing ABS demographic information. Apartments are still in demand even in neighbourhoods with a high concentration of unit blocks, including Sydney’s Ultimo and Haymarket.
High-rise blocks
The idea of a skyscraping high-rise seems to scream “danger” from every perspective when an asset’s value depends on its scarcity factor. In fact, many industry professionals advise choosing smaller blocks with fewer investors rather than enormous cookie-cutter unit blocks.
High-rise apartment buildings may present fewer chances for investors because of reduced resale value and rental demand due to increasing competition. If there are several hundred identical products in the same block competing for the same tenants and/or buyers, your investment won’t stand out. Look for neighbourhoods with fewer units and a higher percentage of owner-occupiers; experts advise at least a 70:30 split between the two.
Premium price
Investments in luxury flats are inherently risky. Opportunities to add value are diminished, the likelihood of overcapitalizing is high, and when times are rough, the top end is frequently the first to go.
Given the absurd buy-in price, even a modest rental yield requires lofty rental levels, and investors can only hope for positive cash flow. Some investors decide to decorate their luxury investment flat and rent it out as an executive rental; while this might enhance income flow, it can also result in high volatility because it is so heavily reliant on the economy.
Off-the-plan purchase
Although buying property off-the-plan always includes some risk, you may still expect to see good returns in this area of investment. Everything depends on the specific property and the market’s trajectory. Off-the-plan purchases can be a terrific method to enter the real estate market on a budget because buyers can establish their claim using deposit bonds and bank guarantees. However, you risk losing a fortune if you don’t agree.
Position in apartment block
People who favour ground-floor flats claim that their choice has little impact on the tenant market, in contrast to top-floor residences that might exclude elderly people and people who use wheelchairs or prams. Those who advocate for the upper floors contend that because they are less likely to be incorporated into or obscured by neighbouring structures, they offer a more open feeling.
Top-floor renters will also enjoy more privacy as their balconies are less likely to stare straight into another building. Apartment buildings with views will naturally favour the top floors, which can significantly increase the value of the property.
Ageing apartments
Some claim that, like a fine wine, an apartment only grows better with time. The argument put up in opposition is that investing in older apartments is risky. Everything is dependent on the price and specific property. Investors need to be on the lookout for unusually high strata levies in newer apartment buildings.
The accompanying charges are increasing to new heights as modern buildings offer more and more amenities, such as concierge and valet services, gyms, and swimming pools, which can drastically hurt your cash flow.
