Apartment buying: 4 top tips

1. Pre-purchase inspections

Obtain an independent valuation prior to purchasing. This can be used to negotiate with the real estate agent and will provide an indication of how much a financial institution might be prepared to lend you. For investors it will also assess the rental potential of the apartment. You should also undertake a strata report. This will tell you the state and financial health of the overall apartment complex and indicate whether there may be any substantial costs arising in the future.

2. Location

This is still the most important thing in any real estate purchase. Poorly located apartments are difficult to sell and rent and will therefore suffer from lower capital growth and may not be cash-flow positive. Things to consider:

  • Proximity to shops, amenities, transport
  • Appeal of the area and demand for accommodation
  • Rental vacancy rates
  • Future development plans for the area
  • Potential for capital growth

3. Apartment-specific

Generally well designed and functional apartments enjoy greater capital growth and have a greater chance of being cash-flow positive. Some specific points to watch out for:

  • Occupant mix – higher proportion of long-term owner-occupiers is a good sign
  • Outlook and views – a good outlook is always preferable especially if there are outdoor areas and balconies that take advantage of the views
  • High rental yield and low vacancy rates – for investors the rental income from the apartment will be crucial to assess its affordability
  • Financial position of the body corporate – a well-constructed and managed building will require lower overall costs to maintain
  • Reasonable strata levies
  •                 Parking – secure owner and visitor parking

4. Finance

Investors – there are many options for investors to finance their investment apartment. Interest-only loans are very popular as they allow investors to concentrate on paying off their own home loan, which is generally not tax deductible, while paying interest-only on their investment – which is tax deductible. Equity can be used from another property or savings to reduce the purchase costs and avoid Lenders Mortgage Insurance. Watch out for inner city apartments, small apartments less than 50m2 and serviced apartments. Lenders don’t like to lend on these too much due to the volatility in their prices over recent years.

There are also a number of no-deposit home loans. These aren’t suitable for everyone and in most cases you still need to make some contribution of your own to cover costs. There is a 106% home loan in the market that requires no deposit whatsoever; however, it’s only available to people with individual or combined income of $80,000 or more. Also watch out for exit fees on these types of loans as many lenders charge a hefty fee if you close the loan within the first three to five years.

Tips provided by Property Penguin