Sunday, February 17, 2013

Investing in Apartments

I have read a number of property books and property blogs recently relating to investing in apartments, and this is a summary of what I have read:

1.  The closer the apartment is to the GPO, the more desirable the apartment will be to renters and buyers.

2.  As a secondary factor, being located near to a rail station, bus way, ferry terminal, University or hospital is also desirable.

3.  The internal size of the apartment matters.  A larger apartment will be more desirable than a smaller apartment of the same configuration.

4.  The number of bathrooms has greater weight in determining value than the number of bedrooms.

5.  Internal layout and design is important.  Does the apartment have good natural light, significant external windows in all rooms, good storage and a good feel?

6. Property values go up and go down.  Property is not a risk free investment.  The whole market may change.  Or the value of property in a particular location may change differently to the market as a whole.  Or the value of a particular apartment may change in the opposite direction to the market (for example, if a building is built nearby that blocks out views.)

7. Employment has a greater weight in determining value and market movement than interest rate changes.

8.  A vacation property or short term rental property is a more risky investment than a CBD or near CBD apartment.  However,  pricing of vacation properties does not take into account this extra risk.

9.  Property investment should be for the long term.  Buying with the intention of owning for less than 5 years is risky.  Transactional costs are high, property is an illiquid investment, and capital gains are often small.  On average, over a period of less than 5 years, a property owner is likely to make a capital loss not a gain.

10.  Financially, for many people, renting is better than buying.  It is also easier to move to where jobs are located if you are not tied to a property.

11.  No one can predict the future.  Many predictions made in the past about property investment have been wrong.  Relying on the advice and predictions of "experts" does not guarantee success.  (Similarly, no one can predict future demand, future interest rates, future unemployment rates, etc.)

12.  Many "independent experts" are not in fact independent.  And many are not experts.  Many say the same thing each year, regardless of the market.  ("It is better to do something than nothing."  "Now is the time to sell."  "Now is the time to buy."  "The property market has bottomed and is on the rise.")

13.  Older apartments are often better value than new apartments. Older apartments are often in better locations and are larger.  When buying from a developer, you are paying for the developer's profit and marketing costs.

14.  There will be future demographic changes as baby boomers retire and die.  This may cause an oversupply of some types of properties or in some areas and an undersupply elsewhere.  But no one really knows what will happen.  (My prediction, for what it is worth, is that older people will prefer apartments to retirement villages where possible, thus creating a greater demand for well located apartments within walking distance of good facilities.  But as mentioned above, many predictions are wrong!)

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