Apartment Dilemma - Buy or Rentvest

sclass on 08/08/2019 - 10:37

My partner and I are first home buyers in Melbourne who, until this week, were considering buying a FHOG-eligible PPOR apartment near our workplace with the intention of working at the same place for at least the next 3-5 years, before then making it an investment property once we move on to more fixed jobs (think decades) which may well be in a different part of town.

What we have realised is that where we were planning on buying this apartment is going to see a big boom in new apartment buildings over the next couple of years and therefore may threaten the future rental yield for our apartment.

Our dilemma is this: should we (a) buy and live in this new apartment for now (being close to work, good location next to a train station and near shops, good view) and make it an investment property in several years, or (b) rentvest - buy a different investment property somewhere else altogether (we are thinking a house with potential for capital growth) and rent close to our workplace for now. Thoughts?

Home & Garden

Comments

  • Quantumcat on 08/08/2019 - 10:41
    +4

    I'm no expert but I would have thought buying an apartment is such a bad idea unless you have no choice (they may have structural problems, no appreciation in value, and if you live there you are stuck in close proximity to many neighbours some of whom could be unpleasant) - buy a house in a nice suburb far away & rent it out, rent close to your workplace, then in ten years when ready to start a family go live in that house. Or even sell it for a profit and buy where you end up wanting to live, if not there.

    • arkie0 on 08/08/2019 - 11:10
      +1

      They lose access to the FHOG if they move into the investment property, unless they live in the house for a year before renting it out.

      Otherwise they would keep existing investment and buy another property as their PPOR.

      • sclass on 08/08/2019 - 11:39

        We don't want to be restricted by the conditions of the FHOG when buying a property. Later down the track, we would probably keep the IP and buy a new PPOR.

      • Quantumcat on 08/08/2019 - 14:34

        Good point

    • AustriaBargain on 08/08/2019 - 12:38

      What if you buy a nice inner city apartment, but rent it out? And rent somewhere cheap outside of town.

      • Quantumcat on 08/08/2019 - 14:34

        The area sounds like it is going to get lots of new apartments so rent may go down, and then if you bought it because of the net gain now you'll have a loss and little or no profit for when you sell it = overall loss

        • AustriaBargain on 08/08/2019 - 15:27

          What if in 20 years the price triples though.

          • Quantumcat on 08/08/2019 - 16:02
            +1

            @AustriaBargain: Banking on an apartment tripling in value seems like a poor bet. Unless there's a good chance of the area improving eg new train station coming in the next couple of years, number of shops increasing, population growing etc. But that wouldn't happen in the inner city which is already as developed as it can get

  • OpenHand on 08/08/2019 - 10:44

    Definitely no to apartments in Melbourne, especially the overbuilt / overbuilding areas. There are lots of them.

    Honestly though, any housing in Eastern states is risky at the moment.

    • serpserpserp on 08/08/2019 - 11:42
      +2

      Honestly though, any housing in Eastern states is risky at the moment.

      lol Where do people get these opinions from?

      • [Deactivated] on 08/08/2019 - 12:01
        +2

        The western states' real estate agents.

      • mskeggs on 08/08/2019 - 12:49
        +1

        Perth can't fall much further is the reasoning. It is down over 30% in real terms.

        • Boshait on 09/08/2019 - 10:34

          Why not? Rents still too low relative to price.

  • one man clan on 08/08/2019 - 10:48
    +10

    If you're going to buy an apartment, don't buy off the plan, don't buy anything built in the last 10 years, and don't buy anything over 3 stories.

    • MrBear on 09/08/2019 - 08:56

      Did you hear that guy on Triple J Hack too who said these exact words?

      • one man clan on 09/08/2019 - 09:41

        No? I'm not an idiot and can think for myself, read the news, and have had experience living in an apartment as an owner. Odd reason to downvote

        • MrBear on 10/08/2019 - 12:03

          Did I call you an idiot? You're an idiot for thinking that though.

  • [Deactivated] on 08/08/2019 - 10:51
    +3

    For investment purpose,

    House> Townhouse > Unit > Flat > Apartment

    House has cptial gain, but less cash flow and more maintenance issues.

    • Quantumcat on 08/08/2019 - 10:56
      +3

      What's the difference between a flat and an apartment?

      • [Deactivated] on 08/08/2019 - 11:11
        +2

        for my understand flat is those 2 or 3 levels of old apartments with only basic facilities.
        flat is cheap to buy, cheap to keep, stable rent.

        • one man clan on 08/08/2019 - 11:34
          +1

          What about unit and apartment? I thought they were all interchangeable.

          • jjjaar on 08/08/2019 - 12:20
            +1

            @one man clan: I always saw ‘unit’ as being single storey with like 3-10ish on a block (or double block). All ground floor and usually having courtyards (though not always).

            Flat as melblover said above.

            Apartments are newer and tend to be 4+ storeys. Usually with a lift inside (whereas ‘flat’ would be walk-up).

          • Quantumcat on 08/08/2019 - 14:36

            @one man clan: Yeah I would picture a unit like jjjaar said. Several similar or identical little houses with some sharing walls, with a private road and visitors car parks and governed under a strata.

      • MrBear on 09/08/2019 - 08:57

        No difference. They are the same thing.

      • LFO on 09/08/2019 - 19:27

        When, in Sydney, they were rundown and nasty, those dwellings were call flats. I still remember the dread newspaper column "Flats to let" … mostly in Bondi and Potts Point. Real dumps.

        Now, those same dwellings have multiplied in price and got a bit of a refurbishment and they are called apartments.
        Like in New York. It sounds better. Although in upmarket New York apartments are bigger (in square meters) than a house. And hell better.

        Now, next questions are:

        What is a penthouse?
        What is a duplex?

        ;-]

  • GG57 on 08/08/2019 - 11:18

    Probably need more specific info before providing my own opinions.

    • What type of development is the apartment? E.g. how many units;
    • What facilities;
    • What are the annual fees?
    • What area of Melbourne?
    • sclass on 08/08/2019 - 11:32

      It's a fourth floor apartment in a five-storey building with about 45 properties, as well as a future cafe downstairs and a rooftop terrace. Strata fees of $2500 pa. Located in north-east Melbourne.

      • one man clan on 08/08/2019 - 11:36

        You sure it's $2500 PA or per quarter? $625/quarter seems cheap for 45 apartments

        • sclass on 08/08/2019 - 11:37

          That's what the REA told us.

        • cookietime on 08/08/2019 - 12:01

          Strata is usually set quite low in the first two or so years to attract buyers. After that they will increase to its "true" value.

          Strata for my 40 years old, low maintenance apartment is $620 per quarter already.

      • Skramit on 08/08/2019 - 11:36
        +1

        in a five-storey building with about 45 properties

        in my experience, capital growth with these sorts of properties is very very very poor. avoid.

        • serpserpserp on 08/08/2019 - 11:46

          How many properties have you bought in this scenario?

          • Skramit on 08/08/2019 - 13:40
            +1

            @serpserpserp: Speaking in generalisations - it's the land that appreciates in value, not the capital improvement on top. So an apartment (one of 45) is 1/45th of the overall land value appreciation. So it's very hard to make big capital gains on apartments in large complexes unless there's unusual market conditions.

            • GG57 on 08/08/2019 - 14:34

              @Skramit: An additional consideration when looking at larger complexes is in regard to each unit holder's voice in Body Corporate decisions. In this example, OP would have only 1 vote in 45 on matters that can directly affect the Body Corporate fees, sinking fund contributions, etc., that OP needs to comply with.

  • johndowy on 08/08/2019 - 11:28
    -1

    Rentvest and buy in Perth. The market in WA has been going downhill for the last decade. It's surely due for a correction anytime now.

    • Stimps on 08/08/2019 - 11:37
      +1

      Perth’s down 36% in real terms. Still overpriced in my opinion.

    • [Deactivated] on 08/08/2019 - 11:53

      Mining boom is gone. China is gradually shifting away from Australia.

    • serpserpserp on 08/08/2019 - 11:55

      It's surely due for a correction anytime now.

      Why would it correct when the economy over there isn't in an upswing?

    • HighAndDry on 08/08/2019 - 12:00
      +1

      The phrase "don't catch a falling knife" comes to mind.

    • [Deactivated] on 08/08/2019 - 12:03
      +1

      It wasn't falling because of some cyclic event.

      It plummeted because the houses are built for an industry that no longer exist or have consolidated to a significantly smaller size.

  • serpserpserp on 08/08/2019 - 11:54
    +3

    OP there is a lot of property gurus in here. But there are some basic things you can do if you want to buy an apartment in the city. Buy one that you'd love to live in. If you can't find one that suits your taste don't get it. If you don't want to live there, then other people probably won't either. If you feel like you are unpicky and could live anywhere, I'd suggest getting as many rooms as you can afford, look for a convenient apartment in the nicer parts of the city that have lots of natural sunlight (and have little potential for other skyscrapers to be built next to it to ruin that light in 5-10 years etc.)

    As other have said, you do roll the dice with apartments off the plan, but if you intend to stick around in that apartment for a long time (maybe 5-10 years) you'll probably be fine. Even if you did make a capital loss, just the fact that your principal will be pretty low means you could pay it off quickly and you won't have a LVR problems if things go bad.

    Now for my personal opinion. Save like crazy for the next 5 years and when you get that job somewhere out in a different part of town, buy the house that you want.

  • sclass on 08/08/2019 - 13:33

    Thanks for the comments everyone. I guess the other consideration for us is the freedom that comes with owning our own property. If we were to rent for the next few years, there comes the uncertainty of potential eviction, not allowing pets, etc.

    My thoughts are that turning this apartment into an IP in the future means that it will be low maintenance (we will be in a busy time of our careers with less flexibility) and can serve as a cash flow property before investing in a capital growth property later down the track that may be more financially risky (to balance out the portfolio).

  • TheMindsetTraveller on 08/08/2019 - 14:34
    +4

    Buy the apartment, live in it for 6 months and 1 day to get all your FHOG benefits. At 6 months and 2 days, rent it out to get all the tax benefit (especially negative gearing) associated with this now turned into investment property. Given that you have lived in the unit on day 1 of ownership, the unit is treated as your PPOR. This means you can then rent the unit out for the next 5 years and 364 days and keep the CGT exemption. So if you bought it at $500k today, lived in it for 6 months and 1 day, then rented it out for 5 years and 364 days and sold it on that same day. Sold it for $700k, your CGT is zero.

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