A small property – such as a unit or apartment – in a rising property market like Colac could potentially make a great investment.
But it all depends on whether you pick the right one.
As our Mortgage Broking team has often said, the magic ingredient when snaring the right investment property is research.
So, when it comes to identifying the right small space to delivery the investment returns you’re hoping for, here are some tips and suggestions for you to consider that we think will help you identify if this is an investment property avenue you want to take.
Of course, if you still have any questions, contact our Mortgage Broking team for an in-person chat about your options – and even more research to consider! We are here to help and have plenty of sources of information at our fingertips that could help you make the right call.
PRO – it can be better from a cash-flow perspective
There are plenty of reasons that support purchasing a small home or unit as an investment property, over a house; the lower entry price being one of them – which typically means a lower deposit.
Smaller dwellings tend to also have lower ongoing costs as well; Local Government rates are one ongoing cost that will usually be lower on a unit or apartment, compared to a house.
Land tax is another cost that you won’t need to pay, depending on where your property is located: with a unit or apartment, some states don’t impose land tax – instead, you’ll pay strata and body corporate fees.
When it comes to apartments, the body corporate is typically responsible for the maintenance of the property, as well – compared to you directly if you have a house. The body corporate fees you pay usually cover these maintenance costs (compared to it needing to come out of your own pocket when you have a house.)
When you add this up, it could mean a unit or apartment provides a better cash-flow scenario – often attractive to those who are dipping their toe in the investment pool for the very first time.
Last of all, good research will give you the best chance of finding an apartment or unit in a location that’s looking promising on capital gains and good returns on your rent.
CON – sometimes, small is TOO small
It’s becoming more and more common for high-density, high-rise apartment developments to be offering properties that are less than 50 square metres. There are several lenders out there who are wary about financing these kinds of properties, because they can be concerned about the rental stability of these kinds of small properties. Therefore, make sure you discuss any property you might be interested in with your Mortgage Broker before you do anything like put your name to a contract, or put down a deposit.
Research is vital
Small living spaces certainly have their market – especially if they are in the right locatoin.
For example, a unit or apartment that is within walking distance, or quick public transport commute to an employment hub, a university campus or busy nightlife, shopping or restaurant district will certainly appeal to a reasonably-sized rental market.
So you do you find these locations?
Seeking out local real estate agents and property managers is a good start; they will have first-hand knowledge of locations that might help you to identify:
- What the demand is like at the moment in that area?
- Is their potential growth? Or are you at the peak of the area’s growth phase now?
- What are current rental yields at?
- Median property prices in this area – what are you looking at?
These are all questions that someone with industry experience – including us – will be able to share with you fairly easily – and if we don’t have the exact answer, rest assured we have a good network that will have the answer close-at-hand.
Learn to analyse the market data
Great data is out there – its just a matter of getting your head around it and knowing what to look for, and what means a good opportunity. Some of the information you will want to make sure you become familiar with will include:
- Knowing how long properties typically stay on the market – this will give you an idea of what growth phase the local market is in.
- What’s the vacancy rate like? Is there a high or low supply ratio? Low supply usually means greater competition amongst renters – which could be good news for potential investors.
- Rental yield – you’ll need to quickly calculate what percentage of the property price you can collect in rent – and identify a percentage that you (and your lender) will be comfortable with.
- Local auction clearance rates – if clearance rates are low, it would suggest sellers are pitching their reserves higher than the market is willing to pay – perhaps you can go in with some lower offers?
- What is property availability like? If it’s low, there’s a good chance demand is outstripping supply – this is likely to inspire capital growth in the near to medium future. Again, good news for potential investors.
Your Mortgage Broker can help you crunch the numbers
We can find you plenty of reasons for – and against – putting money into an investment property, regardless of the size!
But what’s vital is knowing what your financial position is, and your investment strategy – then it becomes easier to identify what option will best-suit your own circumstances.
If you’re thinking about investing in property for the first time, then a small property, like an apartment or unit, can be a good place to start. So contact us about crunching the numbers for you to see if they add up.
Added bonus is that Sinclair Wilson has a team of specialist Accountants also on-hand who can step in to help if you need it, too!
Talk to us today about how we can help you get started with your own ‘little’ property portfolio!
