Is It Worth Getting an Investment Apartment in Melbourne CBD?

shertiger on 22/01/2024 - 08:44
Last edited 22/01/2024 - 11:16 by 1 other user

Hi, my daughter is studying away in Melbourne and struggling to find a rental apartment in Melbourne CBD.

One option is for me to buy an appt which she can then rent. I’ve not bought an investment property in the past and don’t have experience of buying an apartment either. I’m therefore a little bit nervous going down this path.

I’m hoping the OzBargain community can either shoot this idea down as not financially sound or provide some good advice to make this a sound approach.

It’s not clear to me if apartment prices appreciate or what the typical life of apartment buildings are or what typical ROI would be.

My current understanding is that:

  • I should take out only interest loan
  • Need to factor body corp and real estate management fees
  • I’ll need help from the real estate agent to avoid buildings with known structural issues

Thanks I’m advance 😊

Home & Garden

Comments

  • CyberMurning on 22/01/2024 - 08:45
    +16

    Dad is that you?

    • shertiger on 22/01/2024 - 10:15
      +15

      Yes tidy your room now!

  • Dollar General on 22/01/2024 - 08:47
    +11

    Sure. If your goal is to help your daughter and lose money at the same time, go for it.

    Maybe try something like unilodge etc instead

    • CyberMurning on 22/01/2024 - 17:08

      Or…
      Lose the daughter and earn some money?

    • HeWhoKnows on 23/01/2024 - 07:58

      OP is obviously totally oblivious to buying and owning apartments?

      Then just buy a house…

      But the same issues apply to buying house.

      Never mind.

      yeah, Unilodge instead

      PS. OP you need to factor in a lot more than whats on your tiny list mate

  • altomic on 22/01/2024 - 08:48
    +8

    Hi Advance, I'm dad

  • geekcohen on 22/01/2024 - 08:48
    +8

    Why not do a private rental? Avoids real estate fees. Especially since you would be renting to your daughter. If your daughter has any issues, she would come straight to you. Then the real estate agent isn't really doing anything and taking a cut.

    • Ridiculous Panda on 24/01/2024 - 00:08
      +1

      His daughter won’t rent it forever

  • Shadowsfury on 22/01/2024 - 08:56
    +18

    Regarding your last point - the real estate agent is NOT on your side don't trust anything they might say about the building and structural issues

    I'd agree on not bothering with a leasing agent - just do a private agreement with your daughter

  • geekcohen on 22/01/2024 - 08:58
    +8

    Alternatively, could you help your daughter buy an apartment and be a guarantor on the loan? Therefore, she is paying her own mortgage.

  • Porker on 22/01/2024 - 09:04
    +3

    I have an apartment in Melbourne CBD - I'd never buy one again. It was my first investment purchase and while (now) I feel it was a mistake, I did learn a lot from its issues etc

    I know of quite a few apartment owners in the CBD that sold many years later at the same price they bought, which is perhaps better than a loss, but still not good given general CPI.

    As an investment, those items you mentioned do influence the immediate but there is minimal long-term growth from my experience. Consider what you want to achieve with that type of investment as Capital growth may take decades.

    • capslock on 22/01/2024 - 11:40

      Same here. In hindsight I should have bought a unit in the suburbs for investment and just coughed up the high rent for a CBD apartment to live in.

    • CyberMurning on 22/01/2024 - 17:11

      For those with bad investment experience, which year did you bought the apartments? Probably bought at the peak?
      I think it's all about timing I mean now the renting return is high so if you buy at low then should be okay?
      Also how about outside Melbourne like Waverley area? Good for investment?

  • MrHyde on 22/01/2024 - 09:14
    +3

    Apartments do not appreciate much and and as such are not a good vehicle for investing in capital gains. They do get good rental returns, so are good for cash flow - even taking body corporate fees into account.

    You need to think about the goal though - is it to help your daughter, in which case, capital growth/investment returns would be secondary as you would have got significant benefit of owning the apartment while your daughter is studying - do not discount this non-financial benefit.

  • barge-in hunter on 22/01/2024 - 09:14
    +3

    I don’t like the idea of apartments because:
    1) high ongoing maintenance costs (like lifts, pool, sometimes a reception)
    2) they devalue over time, compared to comparable properties- because you have no control over capital upgrades (hard to get a simple “repaint the foyer” job over the line) the new apartment blocks will always look more enticing (and therefore be valued more)
    3) poor build quality and difficult repairs - a water leak appears in your roof or around your window? Good luck finding which apartment is leaking… and never mind cladding that’s not fire rated

    • Gnostikos on 23/01/2024 - 13:59
      +8

      Inner-city apartment living really is the worst of renting and home ownership combined into one miserable experience.

      • Paying a premium for some of the most poorly-constructed, low-quality and heavily depreciating housing in Australia relative to almost any kind of suburban or outer city dwelling in any Australian city.
      • Ridiculously exorbitant annual strata fees (otherwise known as "rent for apartment owners") that go directly into the pockets of cashed-up real estate/strata management companies who will spend the square root of jack sh*t on their apartment complexes.
      • Relying on a financially-demotivated body corporate/strata organisation to rectify basic maintenance/defect issues and arbitrate neighbourly disputes, which they will do with all of the energy and efficiency of a local council as well as ensure to make your life a living hell whenever you're up for a massive expense to fix something (on that note, this recent thread is a timely reminder).
      • Severe restrictions on the changes/modifications you can make to your own home along with an endless list of nanny-state by-laws to abide by.
      • Zero sound-proofing in the majority of apartments (especially any built in the last 10 years).
      • Guaranteed worse physiological and mental health outcomes for inner-city apartment dwellers over prolonged habitation thanks to the wonders of inner-city pollution, poor ventilation, toxic building materials, excessive noise, lack of sunlight, lack of vegetation, claustrophobic shoe box-sized dwellings and a more sedentary-prone lifestyle.
    • WreckTangle on 22/01/2024 - 10:31
      +2

      Um, are you ok?

      • Fredfloresjr on 22/01/2024 - 11:06
        -3

        I am, remember my Uni days at Sydney back in 2010. Free Netflix and chills. Just find the right student where mama and papa loves them so much that they want them to be away and live on their own. The best.

        • Typical16-bitEnjoyer on 22/01/2024 - 15:57
          +4

          Life's been that shit for you the subsequent past 14 years ey?

        • CyberMurning on 22/01/2024 - 17:12
          +1

          So the Netflix is better than the girl? Hmmmm….

  • 87percent on 22/01/2024 - 09:26
    +3

    IF you're going to buy an apartment, don't buy in a multi-level highrise.. buy a unit in a block

    • BargainMe on 22/01/2024 - 12:43
      +8

      In Melbourne CBD… good luck with that

  • mbck on 22/01/2024 - 09:42
    +2

    Are you buygling as an investment or for your daugter to live in?

    2 different objectives.

    Apartments are great to get rental income, not at building capital growth.

  • Broke-Ken on 22/01/2024 - 09:44
    +1

    My daughter is studying away in Melbourne and struggling to find a rental appt in Melbourne cbd.

    That doesn't add up, what's her requirements where she can't find an apartment? There are apartment buildings being built all over the CBD, it's just saturated. I just had a look on realestate.com.au and there are over 3000 properties listed in the CBD as rental.

    • Fredfloresjr on 22/01/2024 - 09:50
      -8

      Bf criteria: wants gf that has her own CBD apt.

    • shertiger on 22/01/2024 - 09:52
      +1

      I might just check how she is searching. Price is obviously important and she would be looking at below $400 ish.

      • soan papdi on 22/01/2024 - 10:32
        +1

        Why does it have to be in the CBD? Money goes further a few suburbs away. Might get more space in the house as well

      • bobbified on 22/01/2024 - 10:41
        +2

        There's definitely not much at the $400/week level. For that price, they're mostly student accommodation (or old buildings that have small rooms targeted at students).

        The prices have gone up significantly over the last 6-9 months. I have my own one bedroom apartment in the CBD and the ones that are the same as mine in the same building are being rented out for about $600-$650/week

      • Typical16-bitEnjoyer on 22/01/2024 - 11:06
        +4

        There's your problem. She's a student, she needs to consider sharing.

  • Ocker on 22/01/2024 - 10:13
    +2

    Get one thing straight - an apartment is not an "investment". Buy one for convenience, necessity, etc., but do not expect to recoup your "investment" costs.

  • 2jzzzz on 22/01/2024 - 10:18
    +1

    Listen to The Property Couch podcast and then do not buy a CBD apartment

  • KaTst3R on 22/01/2024 - 10:45
    +2

    One option is for me to buy an appt which she can then rent.

    Daughter still have to pay rental fees to dad? Sounds like a left pocket right pocket situation. In this scenario, you dont bother thinking about ROI because there will none.

    Currently, the yield on apartment after all fees (strata, council, water, etc etc) is lesser than the cash rate. And apartment in Melbourne CBD has almost no growth due to the over supply.

    • bobbified on 22/01/2024 - 15:47
      -3

      Daughter still have to pay rental fees to dad?

      I'll probably get negged for this, but it doesn't sound like they're asian.. haha

      • CyberMurning on 22/01/2024 - 17:13

        Correction: It does sound

        • bobbified on 22/01/2024 - 17:37
          +1

          It's almost unheard of for asian parent to even think about making their student kids pay rent for a property they own! You would almost have to force asian parents to take rent from their kids. haha

          • CyberMurning on 22/01/2024 - 18:41

            @bobbified: hmm but i know few of asian parents who straight away say you need to give us money now that you are out from uni

            • bobbified on 22/01/2024 - 19:45

              @CyberMurning: Were the parents born here? It's quite unsual, I think.

              Most of my friends are asian… and none of the parents would ever take money from their kids. Especially when they're still at uni.

          • 82norm on 23/01/2024 - 11:06

            @bobbified: Your obviously not Asian.

            • bobbified on 23/01/2024 - 12:09

              @82norm: I'm as asian as they come…. that's why I notice it amongst all my mates. We must hang out in different groups! haha

  • deme on 22/01/2024 - 11:03

    Tell her to get a job

    • shertiger on 22/01/2024 - 11:39
      +1

      She has! Sometimes two

  • emblurr on 22/01/2024 - 11:24
    +3

    If you're going to buy one, buy just outside the city. Suburbs like Carlton, Collingwood, Richmond, South Yarra, South Melbourne.These areas will always be in high demand because of proximity to city, public transports, interesting bars and shops. One with two to four levels with no elevators, pools, gym to keep body corporate low.

    • bobbified on 23/01/2024 - 12:14
      +3

      I considered this myself before, but the rent prices were not that much different around those suburbs and the cost of public transport in and out of the CBD was about $50/week. Plus the cost of any uber/taxi rides at night after going out etc. Depending on how social one is, those costs can easily make it more cost effective to pay the extra and live in the CBD.

  • Commander1201 on 22/01/2024 - 11:33
    +2

    What do people thinking about a Melbourne apartment to live in…I am sick of the rental game and considering putting 100k on 300k apartment, am I shooting myself in the foot? The rental market is grim fellas…

    • Typical16-bitEnjoyer on 22/01/2024 - 11:52
      +3

      Owning anything to live in is better than renting.

      • Commander1201 on 22/01/2024 - 12:29

        Would be my whole savings more or less, 100k but wouldn't have to worry about a roof over my head anymore, the thing is I know it's a bad investment BUT being extorted by Melbourne rents is possibly a bad investment too

        • bobbified on 22/01/2024 - 14:28
          +1

          Would be my whole savings

          Depending on how long it's going to take it might be worth trying to save another $20-30K as a buffer before you go spending all you savings as a deposit. Once you own your own place, you can suddenly come up with things you want to buy etc.. or you might find that some things need fixing. Or you need money for something totally unrelated.

          but wouldn't have to worry about a roof over my head anymore,

          Instead of paying the real estate company, you'll be paying the bank… if you don't pay, you still get evicted haha.

          But I do get your point that there's no need to worry about getting kicked out through (through no fault of your own) - it does come at the cost of flexibility.

      • Ghost47 on 22/01/2024 - 19:30
        +2

        I'd say it really actually depends.

        Would it be better to have a million dollar mortgage, paying $70k a year in interest, or rent paying $35k a year (~$673 a week)? In my opinion interest payments are just about the same as dead money as rent is.

        • Commander1201 on 23/01/2024 - 08:19

          Why I was thinking about waiting…Basically it's Bank interest, rates and body corp vs Rising rents and insecurity

        • Typical16-bitEnjoyer on 23/01/2024 - 11:32

          Who said anything about a million dollar mortgage?

          • Ghost47 on 23/01/2024 - 16:01

            @Typical16-bitEnjoyer: You said "Owning anything is better than renting.", I simply gave you an example of where it's debatable.

    • Dollar General on 22/01/2024 - 11:57
      +1

      Same as always. Comes down to location & supply. Choose a decent location and one where lots of supply is not coming onboard such as CBD, Footscray etc

  • Ghost47 on 22/01/2024 - 19:28
    +3

    what the typical life of apartment buildings are

    I would not buy anything built within the last 15 to 20 years.

    I would highly, highly suggest you buy a townhouse in the inner suburbs instead (e.g. Carlton) of a CBD apartment.

    • Dollar General on 22/01/2024 - 19:29
      +1

      Townhouse in Carlton would be triple the price of a cbd apartment easily

      • Ghost47 on 22/01/2024 - 19:31
        +1

        Indeed it will be, but much less riskier than an apartment.

        Now that I think about it more it's pretty overkill to drop hundreds of thousands on a property interstate just because your daughter is studying there. Unless of course she has decided she will relocate permanently.

  • gza222 on 22/01/2024 - 19:37

    Only high-end city apartments are likely to appreciate - they’re genuine assets. The rest are low quality, quick builds that are typically a long term liability unless you use the purchase specifically to improve your negative gearing opportunity.

    Buyer beware!

    • Dollar General on 22/01/2024 - 19:42
      +1

      Yep. Many cbd apartment building are built for the Chinese to buy so they can get their money out of China

  • ukulele on 23/01/2024 - 07:45
    +2

    I bought an apartment in the suburbs of melbourne. Mistake. On an absolute basis there is some appreciation, however that quickly turns negative once you take into account inflation.

    I could have bought any house in lesser suburb further out. I mean any existing house with land and done much better.

  • andrek on 23/01/2024 - 08:05
    +2

    A good thread to look at: https://www.propertychat.com.au/community/threads/melbourne-…

    • Commander1201 on 23/01/2024 - 09:18

      I had a read and people are talking the ice addicts of Doveton vs the Burglers of Glenroy, not sure how much this site really offers.

  • saltypete on 23/01/2024 - 08:14
    +2

    Land tends to appreciate, buildings depreciate. An apartment is very little land and a lot of building. Plus there is a lot of plant to maintain and replace.
    Ultimately you may be far better off supplementing your daughter’s rent for her to live in the CBD.
    Remember too that she is young, a student learning and growing into an adult. She may prefer to go to a share house, live in a near suburb, do an exchange overseas in just a few years. And that apartment becomes an expensive liability.

    • bbinc on 23/01/2024 - 09:59

      Good point on the exchange possibility. !st yr uni is a notorious sorting ground. Not all students stick with that first plan for lots of reasons, including Uni initiated course changes. In those eventualities an obligation to Dad might not help.

  • JIMB0 on 23/01/2024 - 08:22
    +1

    They have very little land content. What you gain in land value you lose in building depreciation. That's why they are worth much the same 10 years after buying them new.

  • mhz on 23/01/2024 - 09:13
    +1

    Perhaps get her onto flatmates.com.au or flatmatefinders.com.au which will be a lot cheaper for you and the added bonus of living with other students around the same age.

  • Mary Poppins on 23/01/2024 - 09:24
    +1

    @shertiger Could living with a host family be another option? Would she be open to sharing with other students? Surely there’d be share houses in the neighbouring areas looking for tenants wouldn’t there? Have you looked at groups on Facebook? https://www.facebook.com/share/zU7yJg6gT7eHSD1g/?mibextid=CT…

    • shertiger on 24/01/2024 - 09:09

      Thanks for the suggestion. I did suggest that but she prefers to not share :-(

  • loadofrubbish on 23/01/2024 - 11:03

    The uni study lasts 4-5 years, therefore, there is no need to buy an apartment.

    • bobbified on 23/01/2024 - 13:40
      +1

      Four to five years is actually a while. When I did the calculations about five years ago, it was well worth it to buy instead of rent. Sure there's a lump sum of money 'held up' as the deposit, but the monthly rent was $2,200 vs $1,800 for the (P&I) mortgage which is pretty much even when taking the strata costs into account.

      Even with the 'opportunity costs' of the initial deposit factored in, I'm still ahead by paying my own mortgage (than renting) five years on if I was to sell the place now at the same price I bought it for (the price has actually gone up about 15%). Alternatively, I would've paid about $130K in rent all up in the last five years.

  • TheBilly on 23/01/2024 - 13:43

    You are conflating two items.

    1. Investment apartment - you do this when you want to invest to make money.

    If this is your goal, then no there are way better investments out there.

    1. Buy apartment for daughter - you do this when you want to buy an apartment for your daughter.

    If this is your goal, then yes.

    • SlickMick on 23/01/2024 - 15:01
      +1

      If it's a 1-person apartment, then it would be for daughter's use for a time, and become an investment when daughter's finished with it.
      If it's multi-person, it can be simultaneous. Would need to apportion expenses.

  • trapper on 23/01/2024 - 14:23
    +1

    Be aware that if you rent the property to your daughter, especially at below market rates, the expenses will not be fully tax deductible.

    You will likely only be able to deduct expenses up to the actual amount of income, so no negative gearing.

  • SlickMick on 23/01/2024 - 14:57
    +1

    We bought a student accommodation unit when my daughter went to uni. That's worked very well for us. 3 other students covered the cost while she was there, and now we're raking in the $$ with all 4 rooms tenanted. (Though it did slow down during covid, so I'm not saying it's risk-free.)

    We also considered buying an apartment in Adelaide to provide for a niece going to uni there. But I'm really not a fan of cheap inner-city apartments (and I can't afford the fancy ones). They don't appreciate much, and the body corporate erodes most of the income. I'm really not sure it's profitable. On one hand you'll have an asset at the end of the day, but on the other hand you'll have to keep it tenanted to cover the costs.
    In this case, we're going to add a granny flat to her parent's home (3 bedroom home with 8 people). It will cost about the same. Probably better for her despite needing to take public transport to uni, and no ongoing costs.

    Is there student accommodation in Melbourne you could buy? Or do you know anyone in Melbourne to 'adopt' your daughter (and you can build them a granny flat if necessary)?

  • Nirmitha on 24/01/2024 - 02:38
    +1

    if the building was constructed anywhere near the last decade (worst building standards compliance) - be very wary and do extensive research inc. body corp AGM minutes (maybe 2 years worth).

    Probably better off renting in the burbs. Most people take PT to uni/CBD. Better that than making a bad choice in IP.

  • paloverde88 on 24/01/2024 - 02:40

    While you’re at it, the supermarket nearby should be bought out too
    A young person should learn the value of independence hard work and not be propped up here and there by parents - so conditioned and comfortable that all survival skills are gone, will not be able to cope with life’s challenges that lies ahead.

  • mrvaluepack on 24/01/2024 - 06:53

    Not sure if troll thread or not and where exactly in Melbourne having trouble but agents have been advising me that now is peak leasing season and im having trouble getting tenants. Thus having even to reduce rental price to attract prospective tenants.

    • CyberMurning on 24/01/2024 - 08:12

      It's every where… Hard to find place to rent… Just see news and ask people on the street..

    • Typical16-bitEnjoyer on 28/01/2024 - 18:47
      +1

      You're having trouble leasing a place in inner Melb? You're the only one. Your rent must be double the market.

      • mrvaluepack on 28/01/2024 - 18:55

        Apartments are a plenty. Glut of apartments actually. Townhouses and houses are the ones that are easy to lease.

        • Typical16-bitEnjoyer on 29/01/2024 - 10:48

          Ah, it's option 2 then, your investment property is somewhere crap like Glenroy or somewhere not even close to the CBD. Nobody is leasing a house in the CBD.

          • mrvaluepack on 29/01/2024 - 11:53

            @Typical16-bitEnjoyer: Nope, its on Elizabeth street.

            • Typical16-bitEnjoyer on 29/01/2024 - 12:35

              @mrvaluepack: So why are you comparing to townhouses and houses? Not many of those on Elizabeth.

              • mrvaluepack on 29/01/2024 - 12:53

                @Typical16-bitEnjoyer: I was just mentioning that im having trouble leasing the apartment even at market rates. Going to lower it by $50 per week to see if anyone bites.

                • Typical16-bitEnjoyer on 29/01/2024 - 22:38

                  @mrvaluepack: Full circle back to square 1, your rent must be double the market. Rentals in the CBD are filling near instantly. Your town house comment is completely irrelevant.

                  Is yours the dogbox quasi 1 bed/studio, crappy windows, no balcony, low floor on Elizabeth wanting $620 a week? If so, lol.

                  • mrvaluepack on 30/01/2024 - 06:56

                    @Typical16-bitEnjoyer: Nope, its 2 bed 2 bath 1 car. Lowered it to 550 and got 5 applications on the same day. A couple of them even bidding for 580. I just needed to adjust the price to find true market value.

  • Hangryuman on 24/01/2024 - 09:25
    +1

    I lived in Melbourne for 5 years from 1984-89 and also worked as a real estate salesman in Fitzroy/Carlton in 1985 and saw hundreds of inner-city properties.

    I've heard Melbourne CBD/Docklands/Southbank may be over-supplied and I wouldn't buy anything built in the last 10 years since flammable cladding was a problem, and cracks in foundations for poor build quality have left distressed owners in terrible financial disaster - e.g. one retired couple whose Sydney Mascot Towers unit was valued at $2.4M before the cracks were discovered and the building was evacuated - now offered $400K to walk away debt-free - yeah but what happened to the other $2M - my life savings ?

    If I was interested, I'd start looking around Fitzroy for a 1960s unit with north-facing glass - where you can see the building's condition and how well it has been maintained. They used to be relatively cheap but I haven't checked lately.

    • Ghost47 on 27/01/2024 - 02:25
      +1

      What apartment buildings in Melbourne are at risk of collapse? The only stuff I've heard in the news is located in Sydney (e.g. Opal, Mascot, Macquarie Park).

      Flammable cladding is definitely an issue though.

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