Pros and Cons of investing in apartments

So you want to invest in real estate? Congratulations. It’s a big step and an exciting one. Real Estate has made many Australians wealthy and you could be the next real estate millionaire.

With this post, we wanted to briefly touch upon the relative benefits of investing in apartments whilst also being realistic and looking at some of the disadvantages of apartment investment.

Hopefully thinking about some of these points, and talking them through with your financial advisor, will help you make an informed choice about whether investing in apartments becomes a critical part of your real estate investment strategy.

Pros of Investing in Apartments

Cash flow –  You get cash flow from rental income in your apartment. Your tenants pay rent and you get to pocket this – minus the fees for property managers and strata. 

Tax Deductions – Investing in an apartment can give you opportunities for tax deductions. You should speak to your accountant to see which tax deductions may be best for you – these could include negative gearing, depreciation and other tax opportunities

Less maintenance required – When you own a property you have to keep it maintained for your tenants. If you buy a new apartment your maintenance costs may be less (because everything is new!)

Cons of Investing in Apartments

Dealing with strata – When you invest in an apartment you will have to deal with the strata or body corporate. Not all strata’s are created equally and many can be a hassle.

Over on Talk Investing, there have been a bunch of issues discussed with Bad Strata Management. Bad strata can cause the following issues:

  • Ineffective communication between owners, tenants, third parties and tradies/builders
  • Arguments over the maintenance and cleaning of common property
  • Issues with insurance over common areas
  • Inefficient record keeping
  • Issues with record-keeping, budgets and strata fees,
  • Issues with mediation between parties in a dispute and potentially issues with enforcing rules. 

Limited Capital Appreciation – In many real estate strategies, renovation becomes a key tool in adding value to your property, as well as giving you the option to charge higher rents. With a new apartment, there may not be opportunities for renovation. You may also have problems where you need the strata to approve any renovation work. 

Apartments may offer limited liquidity – Once you buy an apartment it may be hard to sell if you end up having cashflow problems. They may be hard to sell and you certainly don’t want to be forced to sell your apartment at a loss. Having said that, real estate has been one of the better performing asset classes in recent times so don’t discount apartments as part of your investment strategy. 

Managing Bad Tenants – You can’t buy an apartment, leave it empty and expect to make money. Not all tenants are great. Some may not look after your property. Some may not pay their rent. Bad tenants can cause havoc but unfortunately, it’s not necessarily easy to kick them out if something does go wrong. You need to make an allowance for the fact that you may end up with a bad tenant. 

There you have it. In this article we have shared with you the pros and cons of investing in apartments and hopefully, you have found some value. If you have any questions about investing in apartments and how apartments can form part of your overall real estate investment strategy, please get in touch today for a no-obligation chat.

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