Apartment investment advise

Need some advise from all the experts here.

I bought an apartment in Adelaide CBD and the value is decreasing after 3 years. A lot people telling me don't keep it because apartment in Australia is a bad investment. So I went to check the sales history and found someone sold a unit with a selling price of $80k below the amount he/she paid for! And another owner told me that she can't find a buyer who is willing to offer better value after 6 months on the market.

I am not ready to lose $80k!!! So I plan to hold it but worry it may drop further.

My question is with all the experiences you have. Is there a recommended holding period for apartment to get value increase?

What is the investment strategy for apartment? Or stay away from it?

 

In relation to units some of the criteria we use for investment grade property is to choose (your budget allowing): top floor or ground floor with a courtyard, LUG or carport or at least a car space off-street, within 400-800 metres (to a max of 1,200 metres) walking distance to a train station. Internal laundry (not shared). Balcony. Preferably in a 3 storey walk-up. No lifts, pools, gyms or spas. Low strata levies per qtr. Quiet street (or if on a busier street, at the back of the block). Not backing onto a railway line. Preferably in a complex of 6, 9, or 12 – 18 units only (to a max of 22 units). After that we look at floor plan - wasted space – hallways etc. and the need for a separate dining area. Ability to add-value now or later. Well maintained block with decent amounts of cash in the administration & sinking funds. Harmony in the building. No history of special levies being raised. No ongoing court cases with builders. etc.

 

@propertyaulover - was this an OTP unit? These will generally take several years to come back to their initial purchase price due to a number of factors:

• Builder/Developer's profit
• GST included in price
• More very similar units coming on market in the area
• General damand for units in Adelaide CBD vs current supply (and new commencements)

 

What is the opportunity cost of holding it?

Does holding it prevent you from moving forward with another good quality investment?

If its not hindering your progress, it may be OK to hold on to...given unfortunately there is negative equity.

Loss is only on paper currently.

Here is a blog we wrote a couple of years ago which you may find of interest:

7 Questions to ask when you’re down the road with a POOR investment (lesson)!

 

Its going to be worse then 80k you got transaction costs of conveyancing, registration, duties, marketing, commissions etc. Property has high transaction costs so if you’re not adding value to the asset 10 years is a short timeline. Is there anything about your particular apartment that can set it apart from the rest or any way to add value through some DIY to soften the blow (turning $1 into $2 on the way out)? Is it in an investment grade location?

I think it is true that you need to know when to get out of a bad thing but it could set you back further by realising those ‘losses’ by selling as they are now only paper losses. I haven’t had to make this decision before but If I did I would consider what the opportunity cost was in my specific circumstances for a repurchase vs potential of the current property conservatively over the same period. Its relative to the value and your purchasing power.

Also, regarding ‘bad investment’ that depends on your strategy, the purpose of the purchase and the asset. If you want/need a growth asset and need to sell the apartment to get one I’d bite the bullet after trying to soften the blow. Also, if you jumped into this without research or specific advice tailored to your goals and you made a mistake I’d make sure I didn’t do that twice.

 

Why did you buy there in the first place? If the assumptions were wrong, sell and start again.

 

its a bit late now since youve purchased it and it sounds like its Not OTP

 

Adelaide's CBD among 'Australia's riskiest property investment destinations' - InDaily

Would be difficult to predict whether your apartment will or won't drop further, but there's a lot of new supply coming onto the market in the Adelaide CBD, so any recovery is likely to take some time.

 

Interesting comment in that article.

“Victoria grows by more people every 27 days than South Australia grows across the entire year, which means more work needs to be done to build a resilient level of people – and economic – demand coming into our state.”

 

Firstly, the $80k seems to be a hypothetical figure that was experienced by someone else. It is hard to say what your paper losses could be based on that. But I accept we are talking about an erosion in equity.

Seems to me that you have four options:

1) Do nothing: ride it out. Property is a very forgiving asset, but it depends on how long is acceptable to you.
2) Sell the property: this is only an option if you have better uses of the funds that can recoup the losses, including acquisition costs.
3) Put loan on to P&I: if the problem we are trying to solve here is essentially evaporated equity, you can claw some back by going on to P&I. This will also magnify your equity when property markets turn around again.
4) Buy another property: Not always an option depending on serviceability, but if you feel that the asset selection was poor, and the market is down, you can dollar cost average into a second cheaper/better property. This is a better long term solution than exiting the market altogether. I have seen this work.

@Gockie highlights an excellent issue with local demographics. But you can only control what you can control. Focus on this.

 

Yes, it is OTP and now is almost 3rd year since completion.

 

High rise with pool and gym and elevators?

 

My opinion it is a good location because it is 5min from tram stop and walking distance to good public & private school as well as 15min walk to china town or coles.

 

I thought it is at a good location and not a lot of apartment in Adelaide CBD that time.
And yes, it is high rise with pool & gym! which cost extra in strate fee!

 

Currently living in it but I want to move out because I have kids now. Thinking to either buy or rent landed house now. But I don't have enough cash to buy landed property near the city.

 

I wish people would stop getting wrong "advise" and "advice"

 

Whats the point of walking distance to good schools if its too small when you have kids?

 

Interesting, I did considered options 1, 2 & 3. However, I never think about the 3rd option? Do you mind to explain how option 3 works?

Now I am analyzing option 4 but it is harder without equity from my apartment and I not sure which suburb is good to buy a landed property now. My plan is stay there for few years then sell or rent it out later.

 

Targeting to rent it out. There are a lot of international students renting this apartment because there are attending the private school. 2 bed rooms is alright with 1 kid but a bit hard for 2.