Apartment buying for property investment can be risky. Therefore, it is important to keep some property investment tips in mind. For example, being mindful of oversupply and questionable quality can be an issue.
Location is linked with oversupply. There needs to be an actual need for apartments in a given area. If a city is closely surrounded by suburbs and is easily accessible, then apartments are not really required. The success of your property investment, therefore, hinges on the novelty or glamour aspects attached to it, and not the practicality, which is not ideal.
In regards to quality, leaky building syndrome can be a particular problem. In New Zealand, if the building has it then the entire building (ie all the tenants) may be required to foot the bill as many of the building companies responsible have declared bankruptcy. The Government makes some contribution but ultimately the bill falls back on the owner.
Leaky building syndrome is caused by the use of inappropriate materials, installation or improper design, resulting in weather tightness issues. In New Zealand, the use of untreated timber has also been an issue as it was considered acceptable to building requirements until recently. Now that the untreated timber used in construction has been exposed to moisture, it has deteriorated and rotted.
When buying any building, but in particular when investing in apartments, one of the key property investment tips is that an inspection process should be thoroughly undertaken. Leaky building syndrome can cripple you if your apartment or home has it. Repair bills in the hundreds of thousands are not uncommon. Those cheap deals you see may not have been a year or two ago but due to circumstances, the owner may now be taking a huge hit to get rid of the property. There is a heap of stories of people losing lots of money in apartments. There are success stories of course, but they are less common.
Another big issue with apartments is obsolescence, in 5-10 years’ time, the building can look like a slum from the outside, which will drive your value no matter what you do to the inside.
When buying apartments for a property investment you need to consider that all you actually own is a small chunk of a large building. It is harder to control your interests in the investment compared to a house, for example.
It’s not all negatives though. Apartments can be a cheap investment that probably has ok cash flow; just don’t bank on any capital gains to be safe, and remember these property investment tips of being thorough with your inspection and research!