Units and Townhouses VS House and Land
If you buy a property in a huge block and it is one of 200 apartments, there is no single value for your apartment and at the end of the day it is all about uniqueness.
Sharing an apartment with 199 other investors can be particularly challenging when most of them are foreign investors. In the event of a cash crisis in your country, they will literally “throw” your apartments on the market in order to quickly sell them at “discount” prices. Your property value also goes down in the fall!
It is also important to remember that multiple owners manage apartment complexes and problems can arise due to conflicting opinions and points of view. Corporation members may not be as helpful or pleasant as they should be and may obstruct repairs and upgrades.
Many lenders place restrictions on certain types of properties, as they perceive the risk surrounding the investment to be higher than it would be with more conventional property types, such as detached houses.
Some lenders won’t lend for an apartment if it’s less than 45m2, or if they provide funds for that transaction, they may have a much higher loan-to-value ratio (LVR).
The earth gives you options
Australia’s population is constantly growing. Owning a home or vacant block of land gives you the future opportunity and flexibility to redevelop it for higher density occupancy. You cannot take advantage of higher-density construction if you own a townhouse or share land with another landlord in a group title.
This future requirement for more homes may provide you with the opportunity to build a number of income-producing properties on your lot. The ideal situation would be to retain them for further future growth.
The secret here is to allow time to work for you as the housing needs of a growing population increase. The most important thing to remember is to take ‘one step at a time’ and not run too far ahead of yourself.
Higher and better use
The secret to finding highly profitable gems when investing in real estate is determining the highest and best use for which the parcel can be developed, and the length of time it will take to put it to the highest and best use. Unfortunately, when you invest in a single apartment in a complex, this use is denied to you, as you only own a small fraction of the land and are unable to make a decision on how it can be further improved for profit.
If you want big returns on your real estate investments and you’re a small investor, stick with detached homes on larger allotments, or create a syndicate and buy an entire apartment complex, so you can exploit the potential in future development. .
Remember, keep investing simple and refrain from overcomplicating it. Most profitable investments are simple, but unfortunately, we investors complicate things under the mistaken belief that it has to be harder.