Apartment investing

Generally speaking, people buy apartments to live in themselves or for cashflow purposes. If you work in the city and want to buy and live in a property that suits your lifestyle and potentially have your mortgage supported by flatmates, buying an apartment can a be a wonderful and complete way to enjoy short commutes and all amenities close by.

However, if you are buying apartments for cash flow, you need to take into account that often the capital gains are much lower relative to properties that come with their own land and apartments actually do not always perform that well in terms of cash flow.

When you look at Auckland apartment capital growth numbers over some 10yr periods, you see an average of 3-4% capital gains annually compared with other properties of similar values increase over the same period at 11-12% each year. This means the value of the property with land (when you buy well) can double in value much much faster and you can usually rent them for about the same amount (sometimes a bit less).

If you are targeting capital gains as a wealth building strategy (instead of, for example, flipping properties for profit) then apartments have not historically performed as well as suburban properties in the 2nd and 3rd rings of the city.

Apartments are popping up all over the place and it’s hard to tell if the quality is as good as the real estate agent is saying (only time will tell) and paying full HOT market price for an apartment with no land can be risky if the market falls at the wrong time for yourself personally taking into account your investing timeline, it might set you back 10years if the values drop by 10% because you will not be able to recycle equity and banks are quite likely to reduce the amount of lending they allow on apartments in times of property doom and gloom.

Buying apartments to renovate or apartments that a way undervalued can be a good strategy, but you really need to know what you are doing, more so that buying normal houses. SO if you can afford to, buy residential homes, not apartments unless you have strong reasons for doing so.

Be aware of broker and agents flogging off apartments as ‘spectacluar low maintenance investments’ because this is usually where they make big commissions from the developer or somewhere along the line that make money from your decision. Seek advice from multiple trusted and knowledge advisers.

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