VIC Melbourne studio

We are looking at buying a tiny studio in Melbourne city. We are using an inheritance, hence only a small property. We have done a lot of research and understand a studio under 50sqm is not ideal, but that is all we can afford. We will be paying cash up to $220,000. We want to stay in the studio ourselves when we visit Melbourne for approx. 3-6 months, and then rent out for 6-9 months (rinse and repeat). We intend to keep the property for more than 7-10 years. We have narrowed down to a preferred property that is not student accommodation, or serviced apartments.

Any thoughts? I know there are plenty of negatives, but would like to hear if there are any positives in this.

Thanks.

 

Why not get a loan if you have 220k cash?

 

It sounds like you are wanting your IP to be everything for you- which is a bad idea. Don't buy an IP because it will be convenient to live in for a period of time. Look for the best place to invest, buy it and then rent it out. Go on airbnb and find a place to rent in Melb CBD whilst you rent your place out, you will probably be better off. Definitely better off in the long run. By the way, a studio in Melbourne CBD is not what I recommend to look at as a good investment.

 

Do you have any non-deductable debt - mortgage on PPOR, car loan, credit card etc? If so pay that first before investing.

Personally a studio is not something I'd go for - but you need to consider what you want out of it. There's likely to be decent cash flow but limited capital growth with that kind of property. Also, vacancy rates and costs need to be considered (body corp / on-site managers etc).

If you own it outright then any income will be taxable (most likely) so that's another consideration.

This may be the only only time in your life that you have $220k cash in your hand, so it's a big opportunity. If it were me, I'd use it as a big deposit and buy something in the $500k - $700k range (or split it and use it for 2 deposits on 2 properties). With a decent chunk of equity from day one you'll be able to borrow against it in the future, and the rent will likely cover costs.

Finally, don't follow the herd and buy in Logan

 

Thanks very much for your responses. I forgot to mention we are retirees, debt-free, and not interested in any more loans. We have owned investment properties before. This was more a fun thing than anything else. I appreciate your thoughts and will probably reconsider.

And The Y-man, you are spot on!

 

If it is purely a lifestyle choice for you and the main game is to make you happy and improve a quality of your life, not maximising investment returns, go for it! Sounds like it will be your 'holiday house' and the purpose of the rent is only assist to cover portion of the costs, body corporate fees etc.

 

Thanks Tillie, yes that's exactly how I was thinking. I want to honour my parents' hard work which provided me with this inheritance, so am reluctant to just blow the money. I thought at least this way I will still have something left at the end of my fun. Based on the responses here, I am doing a lot more research, and I appreciate all the input.

 

Research is a good idea. Never can do too much. Even if it will be your holiday house and main game is not to buy income producing asset, you should buy the best one within your budget.

My recommendation is that choose the building carefully. If you can find something in older building with character (e.g Art Deco) at least your apartment stands out from all newly built similar looking properties. I do not have much knowledge in CBD apartment market and prices, but if anyhow possible try to find something with pretty views. Again when renting or reselling, it will have advantage compared to standard apartments.