Should I buy an inexpensive "student apartment" as investment

Discussion in 'What to buy' started by Johnny_P, 25th Jul, 2017.

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  1. Johnny_P

    Johnny_P Member

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    Hi all,

    Was not sure where to post this question here on "General chat" or on "Where to buy" forum as there are few aspects to my situation.

    I have some savings, around 200K that currently just sit in a savings bank account not doing much. I do not own any properties and it would probably be the obvious choice to buy one and live in it myself. However I am planning to leave Australia in the following year and going to live in Europe for a very long period of time (many years with no planned coming back date). So now I am facing a dilemma what to do with this money. Generally I don't want to transfer money from between countries and prefer to leave it here (if I can come up with some good investment plan).

    The 200K is obviously not enough to buy anything serious and I do not want to take any mortgage as that's too risky in my situation (if the rental income won't be enough to cover the mortgage payments for whatever reason).

    This is when I started looking into small apartments that sometime cost well below 200K. In fact I found a plenty of deals even below 150K limit in big city centers (Sydney, Melbourne) and around universities so they can be used as student apartments. Quick math shows that this is not terrible investment given I can purchase such apartment with no mortgage and assuming that a property yielding >7% interest is a good investment.

    Having said that, I am a skeptical type of person and everything that looks too good on paper AND is easily achievable (there is no shortage of such cheap apartments in Sydney and Melbourne) makes me think I miss something.

    So the question is whether this is good deal generally and in my situation specifically? Are the any traps hiding in such deals that I need to know? Please also note that negative gearing is irrelevant for me as I will not live in Australia so will not have any income taxes to apply it to.

    Apologies for a long post and thank you very much in advance.
     
  2. Beano

    Beano Well-Known Member

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    Are the units budgeted to yield over 7%?
    Like most leases the devil is in the detail
    I have leased student units that was budgeted for a 13% yield that after a couple of years the units actually lost money IE 0% yield
    A number of cost went up , income went down ...no income for some months
    I suggest thoroughly read the lease.
     
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  3. Johnny_P

    Johnny_P Member

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    Thanks for your reply. But I am not sure what that means:
     
  4. Zoolander

    Zoolander Well-Known Member

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    Yield= expected rental income per year divided by the price of the apartment you paid for.
    I think...
     
  5. Gockie

    Gockie Problem solver Premium Member

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    Because you don't want to borrow money, maybe a shares portfolio could be a better option than buying a cheap property?
    You do have several years.
     
  6. Johnny_P

    Johnny_P Member

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    I don't feel confident investing all my money in shares market where I always felt things are more chaotic and less predictable compared to real estate where you usually can have some degree of certainty.

    Moreover, shares portfolio is something that needs to be closely managed and I will need to make consistently good decisions which I doubt I can achieve.
     
  7. Gockie

    Gockie Problem solver Premium Member

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    Read the Thornhill thread (and LICs thread) shares can be easy. Even better is if you go to a Thornhill day... Sydney uni centre for continuing education. Shares do not have to be scary.
     
  8. neK

    neK Well-Known Member

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    @Simon L can probably find you a positively geared investment in Logan region.

    With that much sitting in the offset, it will be very much positively geared.

    Otherwise you can always look at keeping your investment at around $400k to maintain a lower LVR which should generally put you in positively geared territory in Sydney or Melbourne.

    (Assuming it's a property investment you're after)
     
    Last edited: 25th Jul, 2017
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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    finance can be fun

    because of that, CG can be stunted

    ta

    rolf
     
  10. Stoffo

    Stoffo Well-Known Member

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    I have a good friend that has a couple of units.
    I would call them "bedsits", or open bedroom units.
    They're small, but always have a car park.
    Suits students/ people working away from home.
    He seems to do OK, but does have vacant periods.
    They do have their place.
    *try to find one near Belmont Vic, near to Deakin and the new Epworth hospital (Geelong) should be "near" your budget...
    As @Beano said, BEWARE of hidden costs, body corporate, other fee's ;)
    @Dave3214 thoughts on this
    (*not advice)
     
  11. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Can buy a standalone house in Adelaide for $200-220k
     
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  12. PandS

    PandS Well-Known Member

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    Shares required a different mindset and it is a different class of asset so you can't really compare to the property though a lot of people do for one reason or another. Just like comparing
    Oranges to Pear, they all have their unique features and advantages.

    It is generally true for most people shares is a scary experience and a chaotic beast, but it doesn't have to be that way, you can with simple rules and discipline have a portfolio that delivers you exceptional long term return in both capital gain and dividend.

    Here is a snippet of a decent list and many more in no particular order they just pop out of my head, I either have them, hold them, sold them at a bucket load of profit but I always come back to them when the price is right.

    crisis and crash comes and goes these stocks will always stay in my portfolio and I get them the cheapest during crisis and crash

    PGH CBA ORA ARB AMC CPU LNK CSL WOW WES
    HSN BAP ONT CCP GXL SIQ BXB CAR IVC ANN

    Most of my shares I have discipline rules it must pass to make the list, once it on the list I just wait for the right price and I buy with my eyes closed and I can almost always make a bucket load out of them 5-10 years down the road.

    Good luck don't discard shares but learn and be a better investor in them
     
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  13. Otie

    Otie Well-Known Member

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    Could you go halves in a property with a sibling/parent etc?
     
  14. Hamish Blair

    Hamish Blair Well-Known Member

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  15. Gavin1985

    Gavin1985 Well-Known Member

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    I personally wouldn't do student accommodation like unilodge and the like.

    1. Hard to get finance
    2. Usually has a whole set of ******** covenants and bylaws attached to ownership that restricts:
    - that is has to be managed by one management company that usually has ridiculous fees, they are making money off you, off the students, making money off maintenance, pretty much making money every time cash changes hands
    - that when you renovate, you have to use their appliances and materials, they're making money off that too
    - that when you sell, it has to be done through they're endorsed agents (read above- making money)
    3. Capital growth is so little that it's not worth the headache.

    All those fees and money made off you, all of a sudden the attractive yields become ugly. Capital growth is minimal. If you don't want to borrow money, better to look into asset classes outside of property, or if you like property, try REIT's or try those new companies that allow you to buy "bricks" in property i.e- buy a share of an investment property, not sure if they're any good or not but could look into it
     
    Last edited: 25th Jul, 2017
  16. Trainee

    Trainee Well-Known Member

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    Why wouldnt you transfer it overseas and invest locally? What is not to 'want' about transferring money? One very simple example: you want to buy locally where you are going. What are you going to do?

    Are these apartments that CAN be used as student apartments, or they MUST be used as student apartments?

    Cant see how this would be less risk than buying an index fund, if you insist on leaving your money here (have you thought about how your tax will work?)

    Wanting to invest in property but without debt, not wanting to transfer money overseas even though you dont even plan on coming back. Hard to give you ideas when your assumptions dont make sense.
     
  17. Trainee

    Trainee Well-Known Member

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    You know this how?
     
  18. Blueskies

    Blueskies Well-Known Member

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    Agree with others, if you don't want to use any leverage I would go for a diversified basket of LICs and/or ETFs over a single student unit in sydney any day of the week. I would say that ironically your interpretation of the risk associated with each of the two choices is backwards, and the equities would likely have lower risk and better yield net of all expenses.

    You can mange a share portfolio from anywhere in the world, plus access small chunks of capital down the track of needed.
     
  19. Scott No Mates

    Scott No Mates Well-Known Member

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    They aren't cheap for no reason.
     
  20. Skydome

    Skydome Well-Known Member

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    Personally I woudn't bother with them. if you ever want to take a loan out against banks will only 50 percent i beleive.