We all know that location is super important in shaping your property investment decisions, so you’d think the city would be great option. Not necessarily. There are some types of properties in the CBD you should avoid, or at least think twice about before investing, so let’s take a look.
1. Student rentals
Properties which are explicitly designed fore and marketed to students only will limit your investment potential.
These types of properties have a limited tenant pool of just university students, which limits rental growth, but most importantly, these types of properties historically experience low capital growth.
2. Studios or apartments smaller than 45m2 in size
For most investors, the banks are going to eliminate this option for you, as risk-adverse lenders are increasingly refusing to lend against these types of properties.
These petite properties also appeal to a very small target market of singles and they require larger deposits to buy (as banks lend a lower Loan to Value ratio on these properties), which also restricts your potential resale market.
There are far better places to park your investment dollars than an asset with such a restricted rental and resale audience.
3. Oversupplied “generic” apartment complexes
Large-scale complexes providing hundreds of identical units to the market at once is a recipe for a highly competitive rental market, where your trying to attract tenants to your property along with everyone else in the complex!
Instead, find something with a unique appeal to increase your chances of securing quality tenants.
4. Pricy apartments at the top of the market
In the current market, these types of investments deliver tiny yields.
Paying $2m for a property that rents for $1,200 a week equates to a miniscule yield and you can do far better than that by diversifying your investment dollars across several smaller, more affordable properties, as long as each of these properties is investment grade.
This type of property tends to be more volatile – prices tend to boom in good economic times and slump when the economy or business sentiment languishes.
5. Old houses needing major structural repairs
Picking up one of these properties can be a fast way to lose money for those who lack experience, as it’s hard to recoup your spending if you go over-budget – and you almost always will!
Focus on good quality, widely appealing blue chip property assets and you stand a far greater chance of good returns.
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