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A small property can make a great investment – if you choose the right one. If rising interest rates are impacting your borrowing power, then an apartment or unit could potentially be the most viable investment option.
Here’s what to consider to ensure you choose the right small-space property to potentially give you the investment returns you’re looking for.
Benefits of a small property
There are several key benefits to buying a smaller property. You can potentially buy an apartment or unit with a smaller deposit, as houses often have a higher entry price point due to land value.
The ongoing costs such as rates and maintenance for apartments and units can be a lot less too.
If you purchase a house, all maintenance issues are your responsibility, whereas with an apartment or unit, many of these costs are covered by the body corporate.
These factors mean that a unit or apartment may be more favourable from a cash flow perspective, which is particularly attractive for first-time investors.
Why it pays to do your research
Careful research can help you find an apartment or unit in a location set to make both great capital gains and solid rental returns.
Start by talking with local real estate agents and property managers. You’ll want to find the answers to these questions about your chosen location:
How is the local economy doing? Is there employment growth?
What is happening that will affect supply and demand of small-space property in the area in future? Are there many new developments in the pipeline?
What is the historical growth of property prices in the area?
What are the current rental yields on properties similar to the one you are considering?
What is the median price of properties in the area?
As your mortgage broker, we can provide you with a range of property reports with specialised data on apartments and units.
How to analyse market data
It’s important to analyse the data you collect to find a location which maximises the profit potential of your investment.
Some good indicators of these include:
Days on the market. How quickly do properties sell in the area?
Vacancy rate/demand to supply ratio. Is there much competition amongst renters?
Rental yield. What percentage of the price of the property can you collect in rent?
Auction clearance rates. Do sellers need to reduce the price to get a sale?
Limited available property. This could suggest that demand exceeds supply and this is likely to drive future capital growth.
As your mortgage broker, we can help you crunch the numbers to see if they add up. We’ll help you choose the appropriate loan that will not only serve your needs now but could set you up for future investments.
Get in touch to discuss your investment loan needs.
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