How to price a full block of apartments

Hi

I've purchased two houses previously and both have been successful investments in terms of capital growth.

However I've never even considered apartments so don't really know much about them.

A full block of (6) apartments (strata titles) has recently become available that I am considering making an offer for (for complicated family reasons)
.
I was wondering how to value a full block of apartments in order to make a reasonable offer. Is a full block generally sold at a premium, discount or fair value to individual apartments.

Cdchi1

 

If they're already strata titled, they'll often sell at a sum of all the apartments plus a premium. I find these ones to not be worth it at all, I'd rather buy ones all on one title as then that allows options in the future - strata titling them, extending them, renovating them, redeveloping them etc. These will often sell as a premium to the sum as well, because REA's like to price in 'opportunity'.

It really depends on the current market phase/cycle the area is in though and the supply/demand of such a product though. It could be cheaper or higher depending on where the market is at, where the individual vendor is at , etc.

 

Cheers D.T. They are in a blue chip are (Brighton VIC) and seem very decent quality...fully rented at $250K gross rent pa.

The property was bought as a house back in 2011 and turned into 6 quality apartments completed in 2014. Seems strange vendor is selling them already as a full block...perhaps in a tight position.

I will try and value each apartment individually then consider whether to make an offer based on that. Only 2 of the apartments will be strictly investments, the other four will be used for family.

 

If not strata'd I would factor in 15% discount on total cost if sold seperately (ie if 4 x $500k units = $2M so sale price should be $1.7M-ish).

When strata'd you just maybe add up all together as mentioned above as no opportunity/benefit there.

 

Not really sure on the Melbourne market but looks fairly close to the city and beach. On the house values then at a little over $1M each so that would suggest $6M.

If you were to say that the rent was at a 5% yield,(not sure how this compares in this area) then that would value it at $5M.

So somewhere in that range seems about right.

Of course as you mentioned there may be scope to pick-up at a discount, like you mentioned it seems odd to sell them as a lot if they are strata'd unless there was some external pressure to sell. You could always sell off a couple of them later to release some funds.

 

Yes its quite close to beach (beach side of Brighton) though a good km from any decent shopping strip...and on a fairly busy road (cnr block)

$6M was infact my initial 'at a glance' estimate as apartments in Brighton seem to range between $700k and $1.3m depending on condition and location. These appear to be in good condition (going by net photos only, haven't inspected yet) without being standout, and decent location (with own UG carpark) so I thought about middle of the road in terms of individual apartment price (though comprises 3 and 2 bedders).

Just wasn't sure if there was a rule of thumb in terms of valuation when entire block being sold...thread seems to have resolved it in my mind.

Agent doesnt seem to be doing a huge job of selling it, no interior photos at all, just one of the facade and an overhead pic. Also hasn't returned my calls about it yet.

 

Received response from managing agent. Claimed they were inviting offers in the $7.5-$8.25M range.

That's $1.25M per apartment and a yield of 3.3%. Considering 6 of the apartments are 2 bedders, seems much higher than fair value even with a premium for strata titles.

The search continues.

 

Having control of an entire block can have it's benefits if there is a higher land usage/dvpt option. Is this possible here?

 

The apartments are new, completed in 2014 so don't think there are further dvpt options as they are quite good condition with UG CP...already bringing in substantial rent...though even if were dvpt options, not relevant for me due to my situation.

Basically I'm carer for my elderly mother. Her house is way to big so need to downsize. But I need to live effectively 'next door'. Further my sister and her hubby, and grown son, need to relocate as their house is rundown and don't have the money to renovate, though it's in a very good location so would bring a good price.

So the plan was to purchase the block using proceeds from mother's PPoR (around $3M), one of my IPs (proceeds around $1.2M less $200K loan and CGT ) and my sister's PPoR( proceeds around $1.5M) plus remainder from sale of some shares. My mother would own three apartments and live in one of the 2 bedders, I would own and live in another two or three bedder. Sister and hubby would own and live in one of the three bedders and their son (if he wanted to) in one of the two bedders. The other two apartments my mother owned would be sold or rented out.

Having always lived in Elwood/Brighton we love the area so don't really want to move to a more affordable locale.

 

An update. Email from agent yesterday stating client now willing to consider offers in the $6.25M-$6.5M range. That's a fairly hefty drop and close to my initial estimate of $6M.

 

Things to consider:

• Can you add a lift without too much building work/additional fsr (lift may not add to the fsr & are quite cheap)
• You won't need to engage a strata Manager however you'd need to take on the responsibility
• Price is getting more palatable so it will pay to engage your own valuer to back up your offer.

 

I'd put in an offer at what you think fair value is.
The other thing you can do if you are serious about the sale is pay to have a valuation done and base your offer on that.

PS Jinx @Scott No Mates: we think along the same lines.

 

Unfortunately, probably unable to make an offer now as I would need to sell a couple residential properties incl my mother's PPoR, (she is elderly so very difficult to rush this) and my sister's PPoR (discussed in earlier post), and given it's almost mid Nov, in a very awkward time to do so.

Had it been around a month earlier when I started this thread, would have given me more time.

PS: Had a look at some previous rental ads for the apartments and it has lift access to basement car parking

 

I agree it is an awkward time to sell the other houses but it doesn't stop you putting in an offer 'subject to sale' of the houses with a generous time to sell to get over the awkward time of year and not rush your mother.

 

Didn't think of this thanks, might contact the agent and see if thats an option they would consider. Given the hefty drop in price, I'm guessing the seller might be desperate and therefore on a short time frame, but definitely worth enquiring.

 

sometimes a sale with conditions is better than no sale at all. Stick an offer in, it's only a few pieces of paper and some time. But if you're going to put in an offer then I would get a professional valuer to look at it