Is buying an Apartment as first Investment property a good options ?

[Prashant]

Hi All,

I am very impressed with the quality of advise given here and I would really appreciate if anyone can please guide me on below scenario.

I am newbie to climb this PROPERTY investment ladder but as they say the toughest part is to Start and that is what I want to do.

To throw some light on my current position :

I bought this first home of mine on March last year (White Swan road, Mt. Roskill) which is a good street to enter into property market. I bought it for $465000 and some where 6 months back i had Valuation done which came out around $560000 and but now looking at the market and Mt. Roskill suburb prices, it would be easily at $600000.

-> Which means i would have around 20% Equity.
-> Currently my interest rate is 5.09% fixed until next March.
-> My Wife and I both work. Not in a higher bracket of incomes but still combine income is around $75k per annum.
-> We have one kid and he still have some time for schooling hence choice of location is not an issue at this stage.

I approached my Broker and he is trying to get another $450 to $500k approval for me.
It may sound as if I am rushing towards this. (only had 1 and half year of my first home) however i want to have atleast 2 more properties in next 5 years. Thats my aim.


My Question is : if I get between $400k to $500K approval for investment.

1) Should buying Apartment will be an good option as a second home or first investment / Rental property ?
2) I am not sure if I will have Serviceability issue handling Investment as well as my own property ?
3) What would you do with 20% equity or $400 to $500K approval to buy another property ?

Please see if anyone can please guide me in right direction. I know everyone have their own views however atleast I will get some ideas and better understanding. Some of you guys are really expert in such situations. I just want some of your guidance with your experienced knowledge.

I am bit confused about my next move.

Would highly appreciate your efforts and guidance here.

Thanking you all in advance.

A Simple person with High Dreams..

[elguapo]

I am newbie to climb this PROPERTY investment ladder but as they say the toughest part is to Start and that is what I want to do.

Not really true, starting is really easy. The toughest part is property management, the question you need to ask yourself is why you want to become a property manager?

[PTILoveYou]

Hi Prashant

Good that you have taken the first step and good buy for your first home!

For your second property, you need to buy below value as well so that you can get some instant equity and move a bit faster for your 3rd & 4th etc.

Buying an apartment under value may not be easy. With higher quality apartments, their yields probably won't be as good as the shoe-box ones, also higher body corp fees. With shoe-box apartments, there may be higher deposit requirements and banks will ask more questions when lending.

My preference is either buy a house out in west or south auckland, or buy an unit in central auckland. Not sure if $500k can buy even a half section house in Mt Roskill or surrounding area now, maybe in Avondale.

Properties in suburbs tend to have more options like buy undervalue and also add value by renovation and add a room etc.

I think you should prioritise getting equity in your next purchase than worry about serviceability.

[artemis]

Sometimes a good buy comes up, so not a bad idea to be on the lookout and ready to act.

However, apartments come with bodies corporate. And fish hooks. If not familiar with these, it is a good idea to read up in advance and make sure you know exactly what questions to ask. I would start with one of the good summaries online (search for Unit Titles Act) and then check out the Act itself. Ask questions here too.

[Craig Pope Mortgages]

Hi Prashant, I would be avoiding an apartment if it was me, apartments can come with tougher lending rules and a standard property (eg house on section) can often be easier to add value to and create equity. You will likely need 20% equity across both properties (existing and new rental) and I would be careful with servicing especially if you are hoping to borrow around $800k approx (hope I have this right?) with your existing home and new rental. That's quite a bit of debt to service with 75k income and 1 child - even allowing for rental income. Just remember to factor in higher interest rates and the ability to cope with down time in between tenancies and other maintenance - so remember to allow for adversity. Possibly even look at a cheaper property further out in the Auckland suburbs.

[speights boy]

I agree with Craig; serviceability would appear to be the factor here.....as you mention yourself.

How accurate / detailed was your income / expenditure budget which you supplied your broker ?

As a guide, using your planned borrowings and income; what are your mortgage repayments going to be as a % of your planned gross income.
How close to 40% is that figure ?

[Rosco]

Hi,

I would suggest taking your time and look at a variety of different investment options. Go along to Auckland Property Investors Association, go to as many free seminars as you can, and try to build knowledge.

From your post, it would seem that cashflow/serviceability is your major issue. Therefore if you do buy a rental, you want to buy one that pays for itself (even with higher interest rates) and also you need a buffer in case something goes wrong.

With your current one property
- what happens when interest rates go up 1% in March, and you have to pay over 6%? what happens if they go higher? - I'm not trying to scare you, but you should be planning towards this.
- What happens if you or your wife have an accident and can't work? Do you have income protection insurance or other cover over above ACC?

Ross

[Prashant]

Not really true, starting is really easy. The toughest part is property management, the question you need to ask yourself is why you want to become a property manager?

Thanking you for your time, efforts and guidance.

[Prashant]

Thanks a lot Rosco. We do have income protection plans in place with our Life and Medical insurances. Your points are good to consider.

[Prashant]

Yes ...doing research on what you suggested. Thanks Heaps.