Apartment Buyer Type No 2: Investor - Capital Gain
Apartment Specialists Podcast No: 133
Is your prime objective capital gain when buying an apartment? Then you might be this type of buyer. Watch this video to know what kind of an apartment you should be going after.
Buyer type number two. You are an investor and you are looking at buying an apartment. Your prime objective is capital gain.
Basically, you are looking for an apartment where you are going to be renting it out, and then selling it to an owner/occupier down the track. You are going to be buying it, obviously, you are going to get the best numbers you can. For example, rent minus expenses. But the objective is to then sell it to an emotional purchaser who will pay a lot more.
The key thing with this is actually the size. You have got to have the whole market. For example, if you bought an apartment that was 45 metered squared, and it is a two bedroom, not all the banks lend 80% on that. You are cutting out half your market. You are looking at two bedrooms above 55 square meters and you are looking at one bedroom above 40, ideally, 45 square meters and basically, the bigger the better.
The other thing is, that it needs to tick all the boxes. It needs to be livable. I do not mean livable in regards to high-end. I mean livable as in - apartments are the future. It is not going to be long until the average house in Auckland is going to be a million dollars. It is already well over $700,000 and it is going to keep on going up.
If you want to buy a house below $500,000 and you are looking at a 40 minute commute, apartments are where it is going to be. You can see it is going to happen, and it is happening now. I repeat myself that buying in this market, it is a market that is, obviously, livable and desirable. This is a market that is moving. You've got to quote area as size.
If you think about car parks and it is the middle of the CBD, doesn't it have to have a car park? That is a bonus. If it is on the fringes and it has to have a car park. If it is a one bedroom, you will find it has to have a car park, unless it is at the very central. On the fringes and my pick is the two bedroom market, because you think of a couple buying their first property. It will not be a house because they will not be able to afford it. They are going to want another room for when they have the first child. And it is going to be their first property.
Think of all those people who have a house in this younger generation. What is their first investment property going to be? It is not going to be another house because it is too expensive. It is going to be an apartment. That is the market that is moving. That is the market that is going to continue to move.
Now, Let us take another story. Say my sister and she has a house. She's got one child. As soon as they have another child, they are going to need another room.
They have a house in Ellerslie and they need to upgrade. But they have got to get quite a bit of cash. This is what we are going to do. We are going to buy a two bedroom apartment and I will get the rent, so it covers the mortgage. Hopefully, within two or three years it should get $100,000 in capital gain.You are really going to need that and use that leverage to buy your next home and sell your last home.
That is what we did. We bought an apartment in Victoria Street. It was $380,000. A one bedroom with 58 square meters and a high stud. It is a nice area and it is gonna need a lot of money in to refurbishing it. It rents for $595 per week. It is more than the mortgage payments and that is after covering the Body Corporate fee.
Since she's purchased, she's already made $50,000, and that was only four or five months ago. If you are going to follow that criteria, then you are looking at capital gain. You are looking at two bedrooms, with or without car parks, if it is in the city centre. It is in the fringes or in the suburbs, but it needs to have undercover car parking - it just does.
To recap, one bedrooms that are bankable. All the banks will lend on them. They need to be desirable. They need to tick all the boxes. You do not want to buy an apartment that faces south that gets no sun because in the long term, an owner/occupier will not pay as much for that.
You do not want to buy an apartment that has something wrong with it. For example, it is extremely noisy because an owner/occupier in the future will not purchase that. Remember, a desirable apartment, you may have to pay more for now. But that means it is going to go up more because it is going to be more desirable in the future.
That is buyer type number two and you are an investor. You are looking for a capital gain as your primary objective. The rent will cover most, if not a little bit more, than the cost of the outgoings.
Next, I will be talking about buyer number three, which is high risk. Cheers.