Futuristic movies may have cottoned onto something. Flicks such as The Fifth Element and Blade Runner show a world that has densified beyond belief. Everyone lives in 200 story buildings and they spend their lives residing right on top of each other.
The message they send is an interesting one. Clearly, if you’re a savvy man or woman from the future – intent on saving the world, laser gun in hand – you don’t live in a single-story house with four outside walls and a veggie patch in the garden.
It is tempting to say we are a long way from such fictions, which is true, but don’t discount the idea just yet.
The unit opportunity
What does all this mean for property investors?
Long considered by many as nothing more than an affordable alternative to houses, buying units is fast becoming a way to access the high capital growth traditionally associated with houses, while getting strong cash flow.
“Units offer a lot of investment advantages that you won’t get with houses,” says Rich Harvey, CEO of www.propertybuyer.com.au. “There is usually less maintenance required and there’s less ongoing costs. There are also normally less vacancies, so finding tenants can sometimes be much easier.”
Harvey adds that as new houses are getting built further and further away from city centres, it is often the case that units are being released in better locations, much closer to the action, but at a much cheaper price than similarly placed houses.
Units also provide a sense of community that is not always possible with stand alone houses. Some people may dread the idea of living so close to their neighbours, but for others, this is exactly what they want. This is especially true when it comes to retirees, young professionals and students.
When buying a unit, Catherine Bakos, a property advisor at Empower Wealth, suggests always keeping in mind what tenants will value most in a unit property. This should guide your purchasing decisions, recognising that an area’s demographics will determine who your target tenants are likely to be.
“It’s always a good idea to look at the age that tenants will probably be in your target area,” she says. “If you are looking at young professionals – they probably won’t want to keep gardens. If it’s an area popular with downsizers and older people, those round the house features start to take precedence.”
Bakos adds that any suburb you intend investing in needs to have something that residents will gravitate towards. “When you’re looking at the suburb, you have to look at what’s around it. There has to be something that will keep the suburb buoyant. This could be a café culture nearby or fantastic public transport in the area. You typically want to make sure that the lifestyle on offer is ideal.”
While many of the suburb features that make for a good house investment also make for a good unit investment, Harvey says the difference is that a unit requires a certain uniqueness that isn’t always necessary in a house purchase. “You have to look carefully at the number of other units in the area. What’s ideal is to have a reasonably restricted stock of units – areas where there’s unlikely to be an oversupply of new developments coming into the market.”
For Harvey, the advantages of buying in a smaller block where there are few other similar units, are too good to pass up. “A lot of units in a large block are marketed to people overseas. If they get into financial trouble, the first thing they do is sell. Then guess what happens to the value of your unit? It goes down.”
Bakos agrees that finding a unit with some measure of uniqueness should be a high priority. “If you are buying new and the unit is the same as a large number of units being released at the same time, it should send alarm bells ringing. However many people buy, you’re all going to be releasing your properties for rent at the same time and will be competing with each other. You don’t want to fight with other landlords for good tenants.”
Ushering in the old
Another mistake many investors make is assuming that new units are better than old. There may be merits in both purchase decisions, but those of older properties are often overlooked.
“New units have a wow factor, but you have to pay a premium for it,” says Bakos. “You also tend to find that pre-1970s units are often larger: they have larger rooms which is always something tenants want. There’s also more scope to do renovations work – if they’re done up, they can have a wow factor all on their own. Some of the older flats also have hardwood floors, so there’s the opportunity to polish them up, which seems to be popular these days.”
While is easy to assume that the outside of many older apartment blocks have a tired look, Bakos says this may be changing. Many owners corporations in older buildings are actually allocating some of their budgets to upgrading their look. At the same time, there’s a growing appreciation for the classic yellow brick and clinker brick buildings that were symbolic of the 40’s and 50’s.
Knowing what to look for
When looking at the inside of the apartment there are number of things investors should be looking for, says Harvey. “Generally tenants appreciate a good view, a location off the main road, an internal laundry, parking facilities, well lit up spaces and a place that lets them enjoy a reasonable level of privacy.
“At the same time, watch out for owners corporations that charge special levies for things like water damage or, which can be the case in older buildings, fireproofing for timber stairwells. These costs can be a killer.”
Bakos suggests also being cautious of complexes with problematic tenants or where there are signs of an upset lifestyle. This could include tenants that play loud music, have frequent domestic disturbances or fail to take care of their properties.
“You want to get good quality tenants, but then you want to keep them. Make sure that any tenants you’ll have won’t be upset by what their neighbours are doing. It will be easy enough to spot these things when you visit the property, just be sure to visit it more than once, in case problem tenants are away.”