Wellington Apartments for a Newbie

[brunty]

Hi all

My wife and I are looking at entering the property investment game in the next 12 months or so. We currently have a low mortgage on our family home. We were thinking of looking at apartments as they are cheaper and the rent would cover the mortgage repayments. We'd be looking at hopefully getting 10% return a year on the property and we'd be in it for the long haul so not looking to offload if prices dropped or rose in the next couple of years.

What are the pros and cons of apartments in Wellington? Especially with the earthquake code? Could you get stung by big fees to upgrade the building if major work needs doing to it? I see apartments as hopefully being ok to rent out in Wellington so hopefully finding tenants should be ok, but just wondering what your thoughts are and any advice before we dip our toes in the property investments! We'd be looking at getting professional advice with accountants and using property managers so it is low maintenance for us!

Cheers

[kiwibean]

Negative is hard to "add value" to an apartment and you are at the mercy of body corp. Positive side is little to no maintenance so can just collect the rent

[MikeC]

My own rules are:
- Building age (i'd keep to less than about ten years old - but also dont buy brand new.
- avoid leasehold land.
- apartment size - generally for rental return you want as many tenants as possible in the smallest space (that the bank will lend on).

Otherwise check the building and body corp carefully, and choose your tenants well.

10% is cerrainly doable, particularly in dual key buildings and/or letting fully furnished.

Mike.

[Eugene]

Get a good agent.
Apartments have not done well compared with houses - explains part of why Wellington's stats show going sideways for so long
Which says at least you won't be paying over the odds.
Chris Barnes of Bayleys knows the apartment market well

[MikeC]

I think you need to research the buildings you're interested in, go to all the open homes you can, become familiar with asking prices and rental returns, and be ready to move when the right one comes up.
i've found that new listings in any given building often go to a single agents/agencies, so you shouldn't restrict yourself by agent.
ive restricted myself to an area bordered by Kent Terrace, Vivian St andThe Terrace, and avoiding reclaimed land. I check all new trademe apartment sale and rental listings in this area every day. Plus I get a few emails from agents I've used previously.

[williamb]

Apartment investment used to be high risk as bank will not lend you high percentage of money. But now seems a bit different. The latest data shows that last 12 month, Auckland central apartment has raised price to 49%.

[marklowes]

Apartment investment used to be high risk as bank will not lend you high percentage of money. But now seems a bit different. The latest data shows that last 12 month, Auckland central apartment has raised price to 49%.

Yeah and they have almost doubled over last couple of years.

Wellington has always had as expensive (or more expensive) apartments as harder to build in welly (ask Steve Goodey about the hoops you have to jump through to build a building in welly). Today they are bargain buys largely thanks to the news headlines a couple of years ago bringing to everyones attention the spike in insurance premiums. Most of these increases have now been reversed but obviously newspapers dont get headlines for good news so no one knows about it.

Earthquake issues you need to review this:

http://www.google.co.nz/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&uact=8&ved=0CCEQFjAAahUKEwj6jrSGhonIAhVJk5QKHQIhAss&url=http%3A%2F%2Fwellington.govt.nz%2F~%2Fmedia%2Fservices%2Frates-and-property%2Fearthquake-prone-buildings%2Ffiles%2Feq-bldgs-list.pdf&usg=AFQjCNG7TQ2L8SXQynZ7G9J6-lgplF9juA&bvm=bv.103073922,d.dGo

If on this list they have 15 years to do the do the work. Wellington has accessed all buildings now and is miles ahead of most other cities in getting these assessments done so you are unlikely to run into any surprises.

Probably best to buy something NOT on that list, obviously.

I like the terrace near CBD/Govt departments as thats where the workers are (most workers per sq m anywhere in NZ). Also if not from welly you may not know that Lambton Quay used to be the shore line, so everything sea side of that is actually reclaimed. Effects of building on reclaimed land was seen in Seddon quakes when even the new BNZ building on waterfront was shaken to bits and closed for best part of a year, where as an old concrete apartment building I own in on the terrace had zero damage due to good ground up there (some of these older buildings in welly were actually over engineered so are stronger in some respects than new buildings).

Read BC minutes and know whats in BC levies. Some include insurance and water rates, other dont so appear good value until you add water rates...

50 sqm used to be the min size banks would lend low deposit, now I think its 40sqm.

As banks are forced by RBNZ to play it safe in auckland they can afford to bring more risk onto their books, hence more aggressive lending for apartments, which I suspect is the main driver behind the massive Auck apartment price rises, and expect to see similar in welly apartment market as banks struggle to lend money on houses over 500k amongst all the lvr restrictions.

"More than most cities, life is dominated by Wellingtons central business district (CBD). Approximately 62,000 people work in the CBD, only 4,000 fewer than work in Auckland's CBD, despite that city having four times the population." - Thats why I'd be buying welly cbd apartments over auckland right now.

[Eugene]

Thanks Mark for this information

[Corleone]

I have been curious about Wellington apartments for awhile after missing the boat with Auckland. I like the feeling of owning a spacious quality apartment with sunshine and decent yields as opposed to the cramped and dingy offerings within my price range in Auckland.

I have been looking and contacted a few agents, problem is, like a few on here I am stuck overseas, (hence my interest in apartments, low maintenance) this makes it very hard to do due diligence and make a call. Can anyone recommend a finder in Wellington specializing in apartments?

[Stevegoodey]

I know a little about both apartments in Wellington generally and about some of the individual buildings.

I'm happy to try and answer any questions from my experience and knowledge, fire away.

Steve

[eri]

top floor apartment in auckland

nothing special

http://www.trademe.co.nz/property/residential-property-for-sale/auction-953542436.htm

except for the large deck

the deck

pushes the BC from about $3800

to about $8000...

[brunty]

Thanks all, some great advice and I certainly need to do a lot more research before deciding the next move.

My main concerns are the body corp and how you could end up with big bills? If your apartments has a good earthquake % and reasonably new, are you confident of avoiding big bills? How often do the body corp charge for extras?

Cheers

[brunty]

Thanks for the advice, some great tips and thanks for spending time replying to the thread. So do you see good value in apartments in Wellington? We would be looking to hold on to the property for a long time and not flick it on in the short term. Finding a good apartment in the right area is key. Just worried about the body corp and earthquake % which could lead to larger cost.....

[eri]

probably there's a council person

who can tell you about individual building ratings

as a trial run

find a wellington apartment that could interest you

ask the agent for; 3 years of BC minutes, if it has any leak problems and what the seismic rating is

then also go into council and ask about the seismic rating on the property file

[Stevegoodey]

Thanks all, some great advice and I certainly need to do a lot more research before deciding the next move.

My main concerns are the body corp and how you could end up with big bills? If your apartments has a good earthquake % and reasonably new, are you confident of avoiding big bills? How often do the body corp charge for extras?

Cheers

What you have to remember with the body corporate is that it is in effect a Committee made up of owners.
Often you will find that they are administered by a Body Corporate or property management company but they still work for the best interests of the owners.

So there is an upside and a down side to "Bulking together" maintenance issues.
the downside being if you have an older building of say 10 large apartments and it needs $300,000 of earthquake strengthening it could cost each owner close to $40,000 each because there will always be someone who holds out and won't pay.

Having said this the cost of repairing these sorts of issues has been coming down every year.

The upside of a BC building issue is if there are 60 apartments and a $300,000 issue then $5,000 each sorts it out and it could be an additional levy of say $60 per week for a couple of years.

Also useful is understanding that new buildings have to be 100% of new build standard whey council signs them off, so developers often over spec the building above the requirement so that they can get their council code of compliance at completion without any issues.

When agents or engineers quote that a building is 55% of NBS (New Build Standard) the repair job cost isn't automatically horrendous.
I've had an apartment that had a NBS of 40% but once the windows were replaced and strengthened it came up to 70%.

The obvious issue is knowing the information.
Whats the NBS on the building, what price are people paying for apartments in the building, when was it built, when was it updated.
Also find out if it has a current council code of compliance and make sure the building warrant of fitness is up to date.

Email or speak to a city planner in the council office they are usually a mine of information (good and bad).
http://wellington.govt.nz/services/r...rone-buildings

Keep in mind that just because a building isn't on the "Prone Building" list doesn't mean its ok.

Also in your enquiries and Due Diligence make sure you ask for Body Corporate rules, at least the last 3 sets of body corporate minutes and a full set of BC accounts.
What your looking for is evidence of reoccurring repairs, faults and any evidence of the body corporate building a financial account for repairs or upgrades.

Keep in mind that just because theres an issue with a building doesn't make it a bad building or an instant "No".
If theres a repair required costing $100k and the Body Corporate has been putting money away to fix it for a couple of years, it may get fixed without you even needed to contribute if your a new apartment owner.

With newer buildings its worth taking a look at who built it and what else they have built and how that has lasted.
Note also that brand new buildings usually come with a builders warranty, so for the first (say) 2 years any cracks or finishing issues are fixed by the building company and after that they become the liability of the body corporate.
This makes it useful to buy in a building that has been built by one of the bigger companies because often the smaller ones either go bust or change company details before the 2 year warranty is finished.