Apartment Buyer Type No. 1: Income Investor
An income investor’s main priority is to gain neon from their purchase. If this is your aim, you are often looking at smaller apartments that are generally smaller than 50sqm. And ideally you are trying to find something that is 40sqm, this is due to bank lending. The smaller the apartment you purchase as an investment, the higher the return. Having several investment apartments can allow you more freedom to free up cash without having all your eggs in one basket. When looking at what criteria is necessary for these apartments, size is key and carparks and extra amenities within the building are not.
Buyer type number one. An investor. You are an investor and your main focus is income. When I mean income, it is income minus expenses. Your major concerns are the rent you are receiving and the body corporate fees, the rates and any other outgoings. Now, if this is what your aim is then capital gain is not as must of a focus. Generally, you are looking at smaller apartments and you are going to be looking, in most cases, below 50 square metres.
Yes, there are some odd cases where you will have a large apartment with lots of rooms in them. But it is often harder to find tenants because you are going to have to have multi-tenancies or find a group of tenants that all want to live together. Generally speaking, you can say your criteria is below 50 square metres and ideally; the highest return is below 40 square metres.
The reason for this is because of bank lending. There are two major banks that will lend at 80 percent on apartments of 40 square metres and above. All the rest are a lot higher. So, if you are below 40 square metres, that takes out all your other occupiers. That lower demographic who are buying to live and cannot afford it. This means most of the owners of those apartments are investors.
The apartments have not risen emotionally, if you know what I mean. An emotional purchaser is what pushes the prices up and so you will be looking at stock below 40 square metres. But you will be looking at doing it on a 50 percent deposit.
I will give you a bit of a story, this is what I did for my parents. My parents had a house, one of their houses that was $700,000, approximately. Dad was renting it out per room and getting a reasonable income about $1000 a week rent. Yet, the return was horrible. I said, "Dad, what are you doing? Sell, you are not concerned."
He is not concerned about capital gain and the only person that is going to benefit from capital gain is me. And I am not looking for that. He is as fit as a fiddle, anyway. And, so I said, "Dad, sell them. We will go and buy some apartments. We will get three apartments and we will rent them all out, and I guarantee I will double your income, or your net return." That's what we did.
We went and bought three apartments for about 200 odd thousand dollars, furnished them all and rented it and now he is getting double the income. The great thing now is he has got six that are freehold, just for income and that is his retirement paid for. Every time he wants an injection of cash, he just sells one of them because all his eggs are not in one basket.
In a commercial type arrangement where you have got one large property, with a great return, but you have got to find a tenant. That is one type of buyer.
Just to recap on that, you should start that small. Reasonably large body corporate fees, you should be looking into long-term maintenance plan and location. Car parks are something that are not necessary, because if you are looking generally in the middle of the CBD.
What a car park does is lower your return legally, because you pay a higher body corporate fee and you do not get a very good return for the added cost of the car park and that narrows your criteria.
Now, the next one we are talking about is, you are an investor but you are probably a bit younger. In most cases and your main concern is capital gain with income being secondary.