VIC Growth of boutique apartments in Melbourne over the next 5-10 years.

Hi!

Question - once borders reopen in a few years, will boutique apartments in Melbourne experience some good growth? Especially with the strength of this property type being the demand from overseas students.

We're asking as we have one, and just working through next steps i.e. whether to hold or sell it
Our situation:

• Perth house PPoR (Purchased for $825k in 2018). $900k value, $400k loan
• Melbourne apartment IP (Purchased for approx $400k in late 2015). $460k value, $350k loan
• Brisbane house IP (Purchased for approx $500k in March 2021). $450k loan

We're in the accumulation stage so would like to keep buying but starting to get close to our serviceability cap - so we are keen to ensure our portfolio has strong performing assets for the long term (20-30 years).

The Melbourne apartment IP is in a block of 11 (nice street with no high rises) built in the 70's, and 5km from Melbourne City (Flemington). In hindsight, we should have purchased a house on a good amount of land - we had put down offers on a few houses (15-20km out) but they didn't go through as we were starting off (with minimal knowledge) - these houses are now 75% up instead of 15-20% on the apartment we purchased.

So we've been thinking whether we should consider selling the apartment, and buy a house (with a good amount of land) in Melbourne for $700-$800k or in Perth/Brisbane (1*$500k-$600k, 2*$400k). Or hold due to the potential growth plus when selling and rebuying, you'd incur the transactional costs (i.e. $40-50k).

We appreciate any thoughts!

 

Where do you buy a house for $700-800k in Melb?

 

You can still buy one. Dallas, Coolaroo, etc. But maybe it's preferable to live in an apartment.

 

Yes, 2 bedder. About 60-70sqm. No courtyard.

 

Funny that you say Mill Park - this was one of the houses I mentioned in my original post where we had put offers down in 2015 but it didn't go through unfortunately!

 

Appreciate your response. So next wave being the next big jump in overall prices in Melbourne? Or maybe when borders open in a few years, there will be a price surge in these types of apartments?

Understand it's a tough question to answer! I guess I'm trying to see whether it is an average or good performing asset.

 

Yeah, that's what I have been thinking too - surely they'll catch up to a small degree but appears that they are really dragging their feet! I'm also thinking when international students come back (in a few years time), that will push demand.

 

I still think well located apartments, near (less than 1km) public transport and within 20km of CBD are fine - just be wary of rental supply, especially in University areas. You will also be competing against new apartments, so a internal renovation might be required to get good rent and put your place on level footing with the new ones. I think you need to buy bigger ones, 70sqm or more if you can. I have a few of these and they have been securely tenanted all the way through the pandemic.

 

How are rents going? Due to oversupply

 

I have seeing lots of supply, cookie cutter town houses around 7km. I cant believe how cheap it is to rent

 

even more logic for newbies to rent invest, its making sense. Once market cools then revisit alternate strategies

 

Yeah, we had our first vacancy right at the start of the long Melbourne lockdown last year, and we weren't allowed to advertise for 3 months. And then when things opened up, we had to reduce our rent by 10-15% to get someone - that whole process took another 6 weeks.

 

Good point with an internal renovation - might have to consider it. Have you experienced better than 20% growth in the past 5-6 years with your ones?

 

Hi Y-man, you recommend Epping/Lalor a lot. Would love to understand the reasons. Is there a good school in that area? Any pockets you recommend in these suburbs or just try to be close to station?

Cheers