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First Time Property Investor is for Australians who want to invest in property but feel stuck between too much information, conflicting advice, and the fear of getting it wrong. Get honest conversations, practical insights, and clear strategy to help you avoid costly mistakes and move forward with confidence.
Hosted by: Imtiyaz Rather from Hack Mortgages, Pete Theodorou from Mindset Property and Skye Taylor from Taylored Property. You get get the full picture from Mortgage Broking, Buyers Agency and Property Management.
Want to connect with us? ➜ https://linktr.ee/ftpi.pod
[00:00:00] Imti: Should you buy an apartment? That is a question that a lot of first-time buyers and first-time investors are asking themselves at the moment. And with all the changes that have been happening in the property space, we're seeing it pop up more and more. Every third conversation that I'm having at the moment is around, should I not consider rent-vesting, give up the dream of a house, and should I just get into the market with an apartment because it's what I can afford right now?
And if you're listening to this, you're probably thinking the same thing, or you're having the back and forth in your mind right now. And we're hoping this will help you walk through it. So we're gonna cover three things today. First one is gonna be, can apartments be a good investment? The dream for any first home buyer or first time investor is if they buy an owner occupier, they want it to have investment upside.
So we're gonna answer the question, can they actually be a good investment? We're gonna run you through an example of a set of numbers. Rent money is dead money is another motivating factor as to why you might be looking at getting into an apartment, and the numbers are interesting. They might actually change your mind.
And then the third part of that is gonna be a three-step framework to buying the right apartment, which the lovely Pete, buyer's agent extraordinaire, is gonna help walk us through. A quick three-step framework you can apply to any realestate.com listing before you even decide to turn up to an open So let's start at the start.
Pete, and I know you're pretty passionate about this one, can apartments be a good investment?
[00:01:30] Pete: Yes and no. If you get the right apartment, it can be a great investment. The rental yield's good, so you get a pretty high rental return compared to houses, if you get the right apartment. But if you do get it wrong, it can turn into probably the worst decision you can make financially.
[00:01:44] Imti: Mm-hmm Talk to us about the bad side of the fence. Worst decision you can make financially is a pretty big claim. And most people would think that, " Well, I'm getting into the market. Isn't that a good thing?" Are you saying that's not the case?
[00:01:57] Pete: Yeah, with apartments it's definitely not the case. It comes down to the three-step framework we're gonna talk through.
[00:02:03] Imti: Mm.
[00:02:03] Pete: But just a bit of a snapshot, it's when we're buying these high density apartments-
[00:02:07] Imti: Mm-hmm ...
[00:02:07] Pete: and we'll go through this in more detail. The strata fees are ridiculously high. There's a lot of incoming supply. There's no real kind of owner-occupier feel to it at all really.
[00:02:16] Imti: Mm-hmm.
[00:02:17] Pete: And the next person who's gonna buy it is ... there's probably not a very big pool, to be honest. The next pool of buyers is almost non-existent.
[00:02:25] Imti: The price though, that's the appealing part. It's accessible for people getting into the market, and it's where a lot of people who are seeking their independence or they wanna live alone for the first time, they'll look towards buying an apartment.
And even if they're looking at an owner-occupier purchase, a first time purchase, they wanna know if it's still gonna grow, right?
[00:02:46] Pete: Yeah.
[00:02:47] Imti: I don't know about you, but I actually disagree with going in with that sort of mindset towards an apartment full stop. You can't really split that decision.
I'm in the inner city, and I want something new, accessible, all the best amenities because from a lifestyle perspective that's what I want. Yeah. That's why I'm moving out. But I also want it to grow and be an amazing investment. Do you think that's actually possible?
[00:03:11] Pete: Oh, look, you gotta compromise.
[00:03:13] Imti: Mm-hmm.
[00:03:13] Pete: with any investment though, 'cause it comes down to your budget. I mean, ideally you'd be buying in the best location within the best suburb, and it'll be a three-bedroom unit with multiple livings and a deck and all that kind of stuff, which you're not gonna get.
[00:03:28] Imti: which a penthouse that's
[00:03:28] Pete: Exactly
[00:03:28] Imti: ... going for seven figures.
[00:03:28] Pete: Exactly.
[00:03:29] Imti: Yeah.
[00:03:29] Pete: So you're not gonna be able to get that. So I think you do need to compromise on certain elements, and I think going into it I can kinda see where you're going with you, you're not gonna get all.
You're not gonna get the massive growth. You're not gonna get the exact location and the exact type of apartment. But I do think that's where you do need to start to compromise. And look at the numbers though.
[00:03:44] Imti: Mm-hmm.
[00:03:44] Pete: Because as much as people want that element of independence and security and all that kind of stuff, I do believe you can get that with renting-
[00:03:51] Imti: Mm-hmm
[00:03:52] Pete: an apartment.
[00:03:53] Imti: Yeah. I'm keen to break down the numbers with you in a minute, because I did walk a client through this, and it kinda blew their mind.
[00:03:59] Pete: Hmm.
[00:03:59] Imti: It was pretty interesting. Bringing it back to the good investment piece, from my perspective, when I'm talking to clients The overarching thing that I always bring them back to is if you're buying it as an owner-occupier, and you want it to be an investment in the future, how long are you living there for?
Are you living there for five-plus years, seven-plus years, if you're paying stamp duty, depending on what state you're in, can you ride out the stamp duty? Is the interest worth it? Going into a newer building as well, it's not like a home where you can do a reno and add floor space, for example.
You try to add floor space, you'll end off the end of the building. It doesn't work that way. For me, when it comes down to when someone's particularly trying to look at buying it as an owner-occupier, that they'll make an investment down the line, it's understanding how long they're actually planning on being there for.
'Cause in my opinion, if you're there less than five years, the numbers don't stack up, and it doesn't make any sense to actually take that step.
[00:04:57] Pete: Yep. I'll, throw one more thing in there too. Us being here in Australia we're not really apartment friendly or used to being in apartments.
[00:05:05] Imti: No.
[00:05:05] Pete: So, when you're looking at all this stuff, the idea of going in there and just buying the apartment straight away, and not actually knowing how the apartment lifestyle actually suits you yes, you might be there for, seven or eight years and everything like that, that's great, but going from a ... Let's say three bedroom, one bathroom home- ... on 600, 700 square meters, to an apartment with 100 other people in the building, and you're not actually able to add value, you're not able to really make it your own, is definitely something to factor in, too.
[00:05:31] Imti: Mm-hmm.
[00:05:31] Pete: That's probably a bit of a side note, but I think that's definitely a consideration.
[00:05:34] Imti: Yeah. It's- '
[00:05:35] Pete: Cause you don't wanna rush this decision.
[00:05:36] Imti: Yeah. Is the lifestyle piece. Yeah. And apartment living is for a certain type of person.
[00:05:41] Pete: And a phase of your life, too, in some respect, depending on what people decide to do later on, it is often a phase of people's lives.
[00:05:47] Imti: Yes. Young professional in the inner city, corporate gig potentially.
[00:05:52] Pete: Yeah.
[00:05:52] Imti: And they need to be really, really close to everything all the time. Or they want a really low maintenance lifestyle, and potentially they're a retiree, which-
[00:05:59] Pete: Mm
[00:06:00] Imti: they wouldn't be listening to this podcast. If you are, thanks. But boiling it down to can apartments be a good investment? It depends. Would that be fair?
[00:06:08] Pete: Yeah.
[00:06:09] Imti: But also, most of the time, no.
[00:06:11] Pete: Yeah. Agree.
[00:06:12] Imti: And that can actually be okay as well. If you're thinking of buying an apartment and you're gonna be there longer term, and it gives you a sense of security... to me, it doesn't really matter if it performs as an investment, so long as it keeps up with inflation at that point.
[00:06:27] Pete: Yeah, and I tend to agree, but it's about knowing everything, right?
[00:06:30] Imti: Yeah.
[00:06:30] Pete: When we go through the numbers, it may change people's minds.
[00:06:32] Imti: Mm-hmm.
[00:06:32] Pete: But if you have all the facts in front of you and you're okay with it all-
[00:06:35] Imti: Mm
[00:06:35] Pete: then yeah, go for it.
[00:06:37] Imti: Yep. On that let's swing into the numbers because this is an example with a client that I ran with them last week, and they were really fixated on rent money is dead money. And I had to disagree with them. Because when you're comparing buying a property versus renting a property, the immediate thing anyone will do, which is completely normal, and it's because no one's shown to do it any differently, is how much is my mortgage repayment? So how much does the CommBank calculator online say that my weekly repayment's gonna be? And then how much is my rent gonna be every week? Now that doesn't tell the whole story, but it never fails to surprise me how often we need to step back with a client, and that's why I wanted to record this episode really, is 'cause it's a conversation we're having so often around all the extra costs that you don't think of when you become an owner-occupier, in particular an apartment.
Pete, could you quickly run us through what the extra costs would be before I go into breaking down what the numbers actually-
[00:07:40] Pete: Yeah
[00:07:40] Imti: ... look like? Yeah,
[00:07:41] Pete: so anytime you own, it is the same thing for homes, or, houses. You've got your council rates.
[00:07:45] Imti: Mm-hmm.
[00:07:45] Pete: You got your contents insurance as well. Repairs.
[00:07:48] Imti: Mm-hmm.
[00:07:49] Pete: Again, if you're in a new apartment, ideally there won't be too many repairs, but you're still gonna have repair bills. But when we're looking at apartments solely, we've got strata fees-
[00:07:55] Imti: Mm-hmm ...
[00:07:56] Pete: which can be quite expensive on certain types of apartments.
[00:08:00] Imti: Yep.
[00:08:00] Pete: And-
[00:08:01] Imti: Especially the ones that most people want to live in.
[00:08:03] Pete: And they're the high density, you got a pool, concierge, lift-
[00:08:07] Imti: Got a gym
[00:08:07] Pete: ... you got your, your gym. It all adds up. 15
[00:08:08] Imti: level building. Yep.
[00:08:09] Pete: Yeah, it might have coffee shops or retail shops downstairs, which is-
[00:08:12] Imti: Mm-hmm
[00:08:13] Pete: ... cool at the time, but you don't really realise how much this is all gonna cost in the future.
And special levies is a big one too, which people do tend to forget about.
[00:08:20] Imti: Mm-hmm.
[00:08:20] Pete: With apartments they'll, they'll look at the strata fees and be like, "Ooh, that's all we gotta contribute." But-
[00:08:23] Imti: Mm-hmm
[00:08:24] Pete: ... you can get hit with a special levy for massive repair bills, and have to come up with the money very, very quickly.
[00:08:30] Imti: Mm-hmm. So for someone listening to this who might not understand what strata is, I'll get you to explain strata and then what a special levy is.
[00:08:38] Pete: Yeah. So strata, when you look at apartment complexes, you've got a governing body, governing rules. It's like its own legal entity in a way where you-
[00:08:46] Imti: It's like its own mini government, right?
[00:08:48] Pete: It is, yeah.
[00:08:48] Imti: Yeah.
[00:08:48] Pete: Mini world, economy-
[00:08:49] Imti: Yeah
[00:08:49] Pete: ... government, everything, right? And it all falls under the strata.
[00:08:52] Imti: Mm-hmm.
[00:08:52] Pete: And normally, ideally, you'll have an external party who's heading up the strata.
[00:08:57] Imti: Mm-hmm.
[00:08:57] Pete: And think of them similar to property managers-
[00:09:00] Imti: Yep
[00:09:00] Pete: ... in a way, and they'll run annual general meetings, and everyone who's part of the strata, which is all the owners of each apartment block, get together and discuss the affairs of the apartment block.
[00:09:11] Imti: Mm-hmm.
[00:09:11] Pete: And that's when they make all these key decisions in terms of insurances and valuations and repairs, and how they're gonna go about approving things as well. For example, a lot of stratas you can't have pets. that's a big thing that people don't really think about, but you can't have pets, or if you wanna do works, or if you do want a pet, you have to run it through the strata.
[00:09:28] Imti: Mm-hmm.
[00:09:29] Pete: So decisions gets made at this strata group. So that's what the strata is, and basically you need to pay fees to effectively run the strata, so pay the strata company-
[00:09:38] Imti: Yep
[00:09:39] Pete: but also-
[00:09:39] Imti: Pay the government.
[00:09:40] Pete: Yeah, yeah, that's exactly right.
[00:09:41] Imti: Yep.
[00:09:41] Pete: Yeah, but pay for the repairs that get approved through the strata, the general maintenance, the insurances, all of that kind of stuff. Insurances for common areas as well, so you might have driveways, car park spaces, which is a common area.
You need to pay for the insurance, maintenance, general upkeep.
[00:09:56] Imti: Yep.
[00:09:56] Pete: Basically, all of that stuff gets bundled into a strata fee that you have to pay quarterly.
[00:10:01] Imti: Yep. And part of that is also a sinking fund, right?
[00:10:04] Pete: Yeah. Well-
[00:10:05] Imti: So like a budget for repairs.
[00:10:06] Pete: Not all-
[00:10:06] Imti: Ideally ...
[00:10:07] Pete: not all of them, and this is where it gets a bit dangerous, not all apartments have sinking funds
[00:10:11] Imti: Interesting
[00:10:11] Pete: Yeah, yeah.
Some of them even don't have strata, and people get really excited. They'll be like, "Hey, no strata fee." Yeah I'm like, "Yeah, we're not touching that because
[00:10:18] Imti: 'Cause what happens if something goes wrong?
[00:10:19] Pete: Exactly, and you got 10, 15 people-
[00:10:23] Imti: Probably brings up a special levy, right?
[00:10:24] Pete: Yeah, yeah. Or, just delayed, deferred maintenance that never gets fixed, and the whole block is compromised in a way.
[00:10:30] Imti: Yeah
[00:10:30] Pete: Because no one wants to do the work. So yeah.
[00:10:32] Imti: Pay for the gardens to get done.
[00:10:33] Pete: Yep.
[00:10:33] Imti: Pay for the leak that might-
[00:10:35] Pete: Yep
[00:10:35] Imti: ... turn into something bigger.
[00:10:36] Pete: Yeah.
[00:10:37] Imti: All because everyone wanted to-
[00:10:38] Pete: Sold down.
Yep ...
[00:10:38] Imti: save on strata.
[00:10:40] Pete: Yeah, yeah, yeah. So I'm a big believer in making sure there is a strata and there is a sinking fund because if there is no sinking fund, to go back to that, the sinking fund basically is an additional fee on top of the strata that everyone contributes to. So it might be 200 bucks. It could be 500 bucks a quarter-
[00:10:54] Imti: Yep ...
[00:10:54] Pete: that the sinking fund just builds up over time, and when they need to do major repairs, they draw on the sinking fund.
[00:11:00] Imti: Yep
[00:11:00] Pete: But often the sinking fund never has enough money anyway, and you have to chip in on top of that.
[00:11:05] Imti: And that's the special levy, right?
[00:11:06] Pete: And that's the special levy. Correct. Yeah. So you might have to do a roof repair, for example. We, um, were looking at a apartments units, but we're looking at a couple of units the other day, and there was a special levy there raised within the minutes, within the strata meeting minutes, which is available for you to review before you buy, that there's gonna be about a 50 or 60k roof repair, which has been approved, and they're gonna be doing in the next 24 months, and the special levy was, like, 10 grand a unit.
[00:11:30] Imti: Mm-hmm. And in that situation, if you're listening to this and you're going how do I even navigate this? What's going on? Who would be the professional on their team who would look through the strata minutes if they were looking at a property? Who would they need to turn to for help?
[00:11:43] Pete: Yeah, a good conveyancer or solicitor.
[00:11:45] Imti: Mm-hmm.
[00:11:45] Pete: But you need to be pretty specific with who you select because a lot of them won't actually read it in detail.
[00:11:51] Imti: Mm-hmm.
[00:11:51] Pete: They'll just look at the basic stuff that they need to look at, and they won't really review the minutes.
[00:11:55] Imti: Mm-hmm.
[00:11:56] Pete: So make sure you get the conveyancer or the solicitor to do that, and pay them if needed for the extra review.
[00:12:01] Imti: Especially when you're looking at buying an apartment, pay the extra for the conveyancer or the solicitor, right? Because the strata is the landmine that no one else can really understand.
[00:12:10] Pete: Yeah, and these things can be 200 pages. I normally do a quick review, before we push it to the conveyancer, and I know what to look at, but I have the legal background too, right?
[00:12:17] Imti: Yeah, exactly.
[00:12:18] Pete: I know what I'm looking for.
[00:12:19] Imti: Like, you're used to-
[00:12:19] Pete: Yeah
[00:12:20] Imti: ... reading really dry-
[00:12:21] Pete: Yep ...
[00:12:21] Imti: long documents.
[00:12:22] Pete: Yeah, yeah, yeah. And 200 pages doesn't scare me.
[00:12:24] Imti: No.
[00:12:24] Pete: But it's also good 'cause-
[00:12:25] Imti: Scares the shit out of me.
[00:12:26] Pete: Yeah, but I think it's good though 'cause it's actually got a lot of information in there.
And the other side of it too is some stratas aren't very active.
Some stratas are aware that what goes on the strata minutes can affect the valuation of their property.
[00:12:38] Imti: Yes.
[00:12:38] Pete: So if the strata minutes are very, very light on and there's not much there, I would also be very concerned about that. '
[00:12:44] Imti: Cause they're probably hiding something, right?
[00:12:45] Pete: Yeah, that's right. 'Cause when you go to sell, everything that you talk about in a strata is-
[00:12:49] Imti: Has to get minuted.
[00:12:49] Pete: Yeah, exactly right. And then you get that as part of the disclosure documents before you buy.
[00:12:54] Imti: So you almost want detailed strata minutes that just don't have any red flags, right?
[00:12:58] Pete: Yeah. Yep. Or if they're detailed, they've got red flags, but you can see the strata is very proactive in addressing them.
[00:13:04] Imti: Mm-hmm.
[00:13:04] Pete: And that the other members are quite active in terms of their attendance levels as well. Mm. And they're approving it too. You don't wanna be seeing a lot of these maintenance and stuff coming up, which is really detailed, to your point, but then the strata group is just not voting to fix the issue.
[00:13:18] Imti: Yeah.
[00:13:20] Pete: And they're just like defer, defer, defer.
[00:13:20] Imti: Yep. And it reminds me of a client story, which I'll quickly tell before moving on from the strata piece, because I think it was important for us to talk about that in a little bit more depth, and getting to the numbers breakdown around the rent money being dead money, is we had a client who was looking for their first home. Apartment building, inner city in Sydney, decent sized building, and this was back a few years ago when there was quite a few buildings that were having compliance issues after they were built.
[00:13:50] Pete: Yes, and this is very common. A lot of people buying these brand-new apartments or recently built-
[00:13:54] Imti: Yeah
[00:13:54] Pete: there's a lot of compliance issues there. Yeah.
[00:13:55] Imti: And you don't know what can go wrong until a year or two has passed and all the issues have kinda surfaced, right?
[00:14:02] Pete: Yeah.
[00:14:02] Imti: And what we found with this client was that we were going through the loan application process with them and in discussions with the lender, they flagged, an issue with the building through their research.
Google did their due diligence on their side. Yes, lenders do do this, especially with apartment buildings, and they found out that the building had non-compliant fire cladding.
For anyone who's listening to this wondering what that means, it means if one part of the building goes up in flames, most of the building is going up in flames.
And as you can imagine, massive red flag for the client. They were stressed out out of their mind because they didn't know what to look for. Their conveyancer had actually missed this in the documents and, we won't read a 200-page strata document because it's not our legal sphere of, A, coverage, but B, profession, right?
[00:14:56] Pete: Mm.
[00:14:56] Imti: We trust the conveyancer and the solicitor to do that, and it wasn't picked up in this case. And so what ended up happening was you would think client's deposit's at risk, they're gonna lose the property, the loan's not gonna get approved. The lender turned around and was basically like, "No, we're not interested."
And by looking at the strata minutes that were in depth, had actually documented the issue Our team found a clause on would've been page 100 and something discussing the issue, and we actually found out that the strata was in the process of being paid out funds to repair the cladding. They had quotes for the cladding. It had gone out to tender. It was about to be finalised, and the work was about to start, and the strata had actually been compensated the money for the defect. What that means in plain English is that, yes, there was a problem, but they'd already gotten quotes, and they had the money to fix the problem.
[00:15:51] Pete: Yep.
[00:15:51] Imti: And being able to structure that argument and put it to the lender ended up with them turning around and being like, "Oh, you know what? Actually, we will take it. we're able to escalate it through their higher credit teams and get that across the line," because we understood that problem.
And I think to your point, Pete, that's where important long strata minutes is actually a good thing and not letting it freak you out.
[00:16:14] Pete: Yeah, 100% agree. Yep.
[00:16:15] Imti: Let's break down the numbers on the rent money being dead money. So we've covered the fact that strata will cost you a bomb of money in the wrong building. Bringing it back to the comparison of weekly rent versus weekly mortgage repayments. This was a client of mine she's young, first home buyer, wants independence, wants to have a roof over her own head, and also doesn't wanna make financially the wrong decision either.
And she really fixated on the, " if my rent's gonna be 700 bucks a week, and my mortgage repayment's gonna be $700 a week, shouldn't I just buy?" Which to anyone listening to this probably sounds fair enough When we drew in the numbers, the strata, the council rates, all of the extra stuff that you take on as an owner-occupier, her actual weekly housing expense, not including utilities, so not including, all the stuff that you would have to pay for, just the things that you take on as an owner-occupier that you don't when you're renting made her expenses go up $300 a week.
So we weren't comparing $700 versus $700 anymore. We're comparing $700 versus $1,000 if she bought the apartment. And this was for a $500,000 mortgage. Not a lot in the grand scheme of things and what someone who's buying an apartment probably would be looking at borrowing, it's not a $750,000 mortgage that you're taking out for a house. It's the more affordable option. The thing that gets overlooked in this situation is the $700 a week that the bank calculator tells you, that's the minimum weekly repayment. Minimum. Meaning that when you take out that $500,000 loan and you pay it off over 30 years, you actually, when you account for interest, if you only do minimum repayments, you're probably paying back the bank $900,000
[00:17:54] Pete: Yeah, it's something a lot of people miss. And it's all up front too.
[00:17:57] Imti: Yeah.
[00:17:57] Pete: Like, it's all in the initial 5, 10, 15 years. Anyway, that's another story.
[00:18:01] Imti: No, no. It's a great point you bring up because when we broke down the table for her, so, like we can walk clients through an actual repayment table year by year.
$700 a week for five years. that's what, $35,000 a year, right?
[00:18:12] Pete: Yeah.
[00:18:13] Imti: Rough math. Her principal balance, so the balance on the mortgage that she would see in her app every single day, would go from 500,000 to 454,000.
[00:18:22] Pete: Yeah, and that's what, 150, 175,000 in repayments over a five-year period?
[00:18:26] Imti: Yep.
[00:18:26] Pete: Yeah.
[00:18:27] Imti: And only 40 grand and a bit-
[00:18:28] Pete: Yeah
[00:18:29] Imti: ... reduced the principal balance.
[00:18:30] Pete: Yep.
[00:18:30] Imti: Because we're looking at minimum repayments, So then if she wanted to do extra repayments and cut that down, her actual outgoing would be, let's say, $1200 a week. And so now we're comparing $700 a week versus 1200 a week to not get skinned alive by interest.
[00:18:43] Pete: Yep.
[00:18:43] Imti: And when we broke down the numbers- If you're looking to maintain lifestyle and you're younger, and this brings it back to the seven-year thing, like are you gonna stay in there long term? Would you rather just rent somewhere for 700 bucks a week and then just have that 300 to $500 a week to either spend on lifestyle or invest somewhere else? You could put it into another investment class shares with the assistance of a planner or, topping up your super or whatever it might look like. Or you might just decide, hey, 300 bucks a week, that's a trip to Bali every six weeks.
[00:19:10] Pete: Yeah.
[00:19:10] Imti: If we put it in real dollars and cents, it's a trip overseas every six weeks.
[00:19:13] Pete: Yeah, or you could work four days a week.
[00:19:15] Imti: Or you could work four days a week, exactly.
[00:19:16] Pete: Instead of five, you know?
[00:19:17] Imti: that's something to really consider when you're talking about rent money is dead money, is what is the actual comparison you're looking at? What is the total interest cost that you're gonna be looking at paying?
And what's the trade-off? Are you trading off security and peace of mind, which is good if that's your priority, or are you doing it because you think it's cheaper, but it's not actually cheaper, and it's not serving you?
[00:19:39] Pete: And it's a way to get in the market.
[00:19:41] Imti: Yes.
[00:19:42] Pete: Yeah.
[00:19:42] Imti: When honestly, some people are better off served not being in the market.
[00:19:46] Pete: Yep.
[00:19:47] Imti: And it's a conversation for another day, but I'm a big believer in, you don't have to buy a house, but we'll cover that another day. Well, let's bring it home, Pete. Last thing that we wanted to cover. Three steps to buying the right apartment. So we've covered all the risks, why strata can be horrible, but also why it can be a good thing, the extra cost that no one really factors in when they're looking at an apartment. Now, let's say we've gone, "Cool, I'm committed to it. I wanna do it." What are the three things that get us the right apartment.
[00:20:16] Pete: Yeah. So I've broken it down, and it's always thinking about who's gonna be the next buyer.
[00:20:21] Imti: Mm-hmm.
[00:20:21] Pete: That's always the pinnacle of what we look at when we're looking to invest in locations, is who's gonna be the next buyer.
[00:20:27] Imti: Can you explain that for me a little bit more?
[00:20:29] Pete: Yep. Look, it kinda comes down to what I've been saying in the past, the next buyer, we want it to be an owner-occupier.
[00:20:35] Imti: Mm-hmm.
[00:20:36] Pete: But we also want it to be investors.
[00:20:38] Imti: Mm-hmm.
[00:20:38] Pete: So we wanna start to, think about who's going to be bidding and who's going to be wanting the property. So if we can get investors and owner-occupiers wanting the property, we're winning.
[00:20:47] Imti: That's the thing, right? Is that, good investors will go after property that owner-occupiers want.
[00:20:51] Pete: Yeah, that's right. Yep.
[00:20:52] Imti: Yeah.
[00:20:52] Pete: 'Cause they know that's where the value is, that's where the fundamentals are, everything like that.
[00:20:56] Imti: Mm-hmm.
[00:20:56] Pete: But if you're buying a property and there is no next buyer, and a lot of people will be like, "Well, how can there not be a next buyer?" We are now moving into a phase of Australian property where there will not be next buyers for certain properties. I do fundamentally believe that, and it's something that a lot of people will disagree with, but I think if you're in the industry, you kinda get it.
We are gonna see a time where, yeah, properties are just not gonna be ... not sellable, but you're gonna be having to sell them at a massive discount-
[00:21:19] Imti: Yeah
[00:21:19] Pete: ... to get, to offload them.
[00:21:20] Imti: It's gonna be-
[00:21:20] Pete: Yeah
[00:21:20] Imti: ... it's gonna be more difficult.
So let's quickly break it down. Who's the next buyer? That's what we're making our decision on. First part of that is where is it?
Sounds basic, but break that down for us.
[00:21:31] Pete: Yeah. So think about the best parts of the city or the suburb. It's often those areas where there's a lot of shops, we've got the retail strips, we've got the cafes, the restaurants, public transport, everything's happening. There's a good vibe around it.
[00:21:44] Imti: Yep.
[00:21:45] Pete: That's the location you wanna be buying in.
[00:21:47] Imti: Mm-hmm.
[00:21:47] Pete: And often they've been around for years. They've been around for the last 50 years, for example- Yeah ... and they've been popular spots, and they're gonna be around for the next 50 years as well. Nothing's gonna fundamentally change that. So that's what location is, and often the apartments in those pockets of the suburb or city are the old red brick walk-up apartment blocks.
[00:22:05] Imti: Mm-hmm.
[00:22:06] Pete: Yeah.
[00:22:06] Imti: That's probably the second part, right? Which is, is it the right type of building?
[00:22:10] Pete: yeah, exactly right. And that comes down to the density element of it, right?
[00:22:13] Imti: Mm-hmm.
[00:22:13] Pete: we might have anywhere between 10 to 20 apartments on the block.
[00:22:16] Imti: Mm-hmm.
[00:22:17] Pete: They're in the premium location.
[00:22:19] Imti: Yep.
[00:22:19] Pete: But then when you're going on the outskirts of these locations, you're getting these high-rise style apartments.
[00:22:25] Imti: Yep.
[00:22:25] Pete: And they're not in the best location, but they've also got 50 60 70 80, 100 apartments on the block. And you just feel like you're gonna be in a hotel.
[00:22:34] Imti: Completely agree with you. There's probably someone who's listening to this being like, "Yeah, but there's really big buildings in the right locations, so shouldn't I buy there?" When you're listening to this, understand that it is a three-step framework.
It's not a, you've ticked one box and it's all good.
[00:22:48] Pete: Yeah.
[00:22:49] Imti: Because bringing it back down to where is it, yes, there might be a massive high rise that's in a good location-
[00:22:56] Pete: Mm
[00:22:56] Imti: ... that ticks all the boxes you just talked about, but it still needs to be the right type of building, right?
[00:23:00] Pete: Yeah. And you're paying a premium for it too.
[00:23:01] Imti: Mm-hmm.
[00:23:02] Pete: And this just comes back to the whole replacement value, and we can go on-
[00:23:05] Imti: Yeah
[00:23:05] Pete: ... all of that, in future episodes. But yeah it kinda falls into the next category as well though. I agree that you can buy that style apartment in good locations of these areas, but then it comes into the third factor, which is the supply side or-
[00:23:16] Imti: Is there more being built?
[00:23:17] Pete: Is there more being built? That's exactly right, and there is.
[00:23:20] Imti: Mm-hmm.
[00:23:20] Pete: And this loops right back in to the next buyer because at the moment, first home buyers get new home buyer grants.
[00:23:26] Imti: Mm-hmm.
[00:23:26] Pete: Right? Or there's some states where stamp duty is completely exempt.
[00:23:29] Imti: Yep.
[00:23:29] Pete: So what are they gonna be chasing?
[00:23:31] Imti: Stamp duty waivers.
[00:23:32] Pete: Yeah, exactly.
[00:23:32] Imti: And cheap, affordable living in good locations.
[00:23:34] Pete: Yeah. So they're gonna be chasing the new apartments.
[00:23:37] Imti: Mm.
[00:23:37] Pete: Now, from an investor point of view, how do you get negative gearing? If you want your negative gearing every year, how do we get that?
[00:23:43] Imti: Now new builds.
[00:23:44] Pete: Exactly. So the investors are going to be really looking for newer builds if this is the style of home they want.
[00:23:50] Imti: Mm.
[00:23:50] Pete: if we've got a first home buyer and investor and the style of apartment that they want is these newer build styles, they're gonna be going down the street to the next major development happening and buying an apartment in that block.
[00:24:02] Imti: Yep.
[00:24:02] Pete: They're not necessarily going to care about the location.
[00:24:05] Imti: And that's the thing, right? We've touched on it on previous episodes around the tax changes. Should you be buying for negative gearing benefit? No. But people psychologically do it, right?
[00:24:13] Pete: Yeah.
[00:24:14] Imti: they just go, "Oh, a tax break."
[00:24:15] Pete: Yeah.
[00:24:15] Imti: And if I'm comparing, let's say-
[00:24:18] Pete: It's like a badge of honor or something in Australia.
when-
[00:24:19] Imti: Yeah
[00:24:20] Pete: ... we go, "Oh, yeah, I'm getting a tax break from investing in property."
[00:24:21] Imti: Yeah, it's like, yeah, but I'm making no money. Um. But, for someone listening, for you to visualise it, let's say there's one tower that's 20 stories, and you've bought in that tower, and that's where you are. And then across the road, the exact same tower's being built, and it's gonna finish in 24 months. It's two sets of the exact same building in the exact same location, but one has more financial incentives for people to buy in, being the new one. What does that mean for the place that you bought No one's gonna want it
[00:24:50] Pete: There is no buyer. Like this is-
[00:24:51] Imti: There is no buyer ...
[00:24:52] Pete: again, I fundamentally believe that's how it's gonna play out.
[00:24:53] Imti: Mm-hmm.
[00:24:54] Pete: Because why would you?
[00:24:55] Imti: No.
[00:24:55] Pete: if you're gonna buy something-
[00:24:56] Imti: Yeah
[00:24:56] Pete: ... that's almost new, built within the last 10, 15 years, why wouldn't you just go down the road and buy a brand new one?
[00:25:01] Imti: Yeah. And get tax breaks and get a stamp duty waiver.
[00:25:03] Pete: Exactly.
[00:25:03] Imti: And get a newer building ...
[00:25:04] Pete: as painful as it is, you're actually better off buying that brand new one-
[00:25:07] Imti: Yeah
[00:25:07] Pete: ... 'cause you're gonna get the tax breaks and all that-
[00:25:09] Imti: Mm
[00:25:09] Pete: ... kind of stuff, because they're both not gonna grow.
[00:25:11] Imti: Yeah.
[00:25:11] Pete: they're both not-
[00:25:12] Imti: They're-
[00:25:12] Pete: ... gonna actually get much compound growth or anything on it.
[00:25:14] Imti: No.
[00:25:15] Pete: But at least you're gonna get the tax breaks on one.
[00:25:16] Imti: Yeah.
[00:25:16] Pete: And at least you're gonna get stamp duty waivers on one-
[00:25:18] Imti: Mm-hmm ...
[00:25:19] Pete: as a first home buyer. So you have some chance of, I don't even want to say-
[00:25:23] Imti: Not losing money.
[00:25:23] Pete: Yeah, but like- Yeah ... you're gonna lose money, but you're gonna lose less money-
[00:25:26] Imti: Mm
[00:25:26] Pete: ... is a way to put it, buying the brand new.
[00:25:29] Imti: Yeah. It protects downside, right?
[00:25:31] Pete: It does, yeah
[00:25:31] Imti: ... protects from losing money.
[00:25:32] Pete: Yeah.
[00:25:33] Imti: And that's why, if you're building A on the left that was three years old, and, B2, the second banana, is about to open-
[00:25:40] Pete: Mm
[00:25:40] Imti: in 24 months, and it's the exact same layout built by the exact same developer, I'm taking the tax break. Everyone is ...
[00:25:47] Pete: yeah, and if someone came to me saying, "I want a brand new apartment," I'd be like, "Well, talk to this developer here."
[00:25:51] Imti: Yeah.
[00:25:51] Pete: I wouldn't even bother doing the work because it's not hard.
[00:25:53] Imti: No.
[00:25:54] Pete: It's very easy. No deposit. Some of them are very, very low deposits too.
[00:25:57] Imti: Yeah, yeah.
[00:25:57] Pete: Right. You put down a couple of grand.
[00:25:58] Imti: 2% or less. Yeah.
[00:25:58] Pete: Yeah, yeah. And you're done.
[00:26:00] Imti: Yeah.
[00:26:00] Pete: You don't have to come up with the 10, 15, 20% deposit.
[00:26:03] Imti: Yeah, straight away, 'cause you put a holding deposit down until it's built, and then that gives you the time to save the money.
[00:26:07] Pete: Yeah.
[00:26:07] Imti: Or...
[00:26:08] Pete: So what incentive is there? There is none.
[00:26:09] Imti: Yeah. And I think that's where, the third part, being is there more being built, is something that's so slapped on, right?
[00:26:16] Pete: Yeah.
[00:26:16] Imti: Branching it off even further than that, when you're on realestate.com, if there's 20 listings in the same building, or you use our favorite tool, the map view- and you look out at a three-kilometer radius and there's 70 apartments for sale, probably doesn't pass the... Is there more being built, but also is there just too much supply?
[00:26:34] Pete: Too much supply.
[00:26:35] Imti: Right?
[00:26:35] Pete: Yep. Yep.
[00:26:36] Imti: And I think in terms of is there more being built, where is it that's easy enough for someone to look at the location, understand, touch, feel?
Is it the right type of building? You've put out a pretty good quick checklist around walk-ups, red brick, no lifts, low maintenance, less than 20. Is there more being built is probably... What would be the two things someone could quickly do to check that? To me, the first one would be realestate.com. If you just go on there and go on the for sale section-
[00:27:06] Pete: Yeah
[00:27:06] Imti: ... you'll actually see the off-the-plan apartments and the existing listings all together in the one spot. To me, that's the easiest way to check if there's more being built and if there's an oversupply. But let's say someone wants to take an extra step.
How would they check if a new building's even being built? It's not even ready to be listed for sale yet. How would they check that?
[00:27:28] Pete: One metric, which is the most important metric, is the building approval levels.
You can check council websites, also Profile ID or REMplan are excellent. They summarise all the bits and pieces of information from the relevant councils-
[00:27:42] Imti: Mm-hmm ...
[00:27:42] Pete: and they condense it into nice looking graphs.
[00:27:44] Imti: Yep.
[00:27:44] Pete: And also the ABS. So you can get all this stuff for free, but building approval levels is the big one.
[00:27:47] Imti: Mm-hmm. Between those two you'll be able to figure out is there gonna be massive supply where you're buying.
[00:27:53] Pete: Yeah. But also, if they've built a massive tower, it's likely they're going to build more.
'Cause there's mega money for the developers.
[00:28:00] Imti: Yeah. That's another ramble we can go on.
[00:28:01] Pete: Yeah.
[00:28:02] Imti: But we'll put a pin on it and move on from it, 'cause, the economics of high-rise is very, very interesting, but long, long story short, for someone who doesn't want a development rant, the higher up you go, the more money you make.
Yeah.
[00:28:12] Pete: Yep.
[00:28:12] Imti: Because you're not buying land. Pete, before we wrap up, if there's one thing that you wanted to recap or expand on a little bit more, what would it be?
[00:28:20] Pete: So it would just be why these walk-up red brick units will outperform.
[00:28:23] Imti: Mm.
[00:28:24] Pete: And it purely comes down to replacement value. And also the price you're paying.
So you can go out and buy these units for anywhere between 3 to 500k, for example.
[00:28:31] Imti: Mm-hmm.
[00:28:32] Pete: But to buy an equivalent in these new high-rises, it could almost be double.
[00:28:34] Imti: 750, 800.
[00:28:36] Pete: E- exactly.
[00:28:36] Imti: Yep.
[00:28:36] Pete: Yeah. So when you're buying something so cheap below replacement cost in a great location, you can't fundamentally go wrong.
[00:28:43] Imti: Cause the location will do the work,
[00:28:45] Pete: Exactly right. And people want less density. If you're gonna live in an apartment long term, I can almost guarantee-
[00:28:49] Imti: You want 20 neighbors. You don't want 200.
[00:28:51] Pete: Exactly. And you don't wanna be sitting on strata meetings with 200 people, it is a massive headache.
[00:28:54] Imti: Mm-hmm.
[00:28:55] Pete: It feels like very much like you're living in a hotel. It's just something that we're not comfortable with. But if you're looking at the lower density, you're buying well below replacement value, half the cost of what you'd pay for a brand-new property, so a brand-new apartment, and you look at all the interest and all that kind of calculations that's the reason why I do believe they're gonna outperform.
[00:29:10] Imti: Mm-hmm. I completely agree with you. And the other thing that's probably just slept on from, an emotional standpoint is that they just get overlooked.
[00:29:16] Pete: Yeah Because they're old.
[00:29:17] Imti: Because they're not as pretty, but better location, better lifestyle 'cause you're in a better location, and probably more room to actually do some cheeky renos, increase quality of life, and maybe even increase a little bit of the property's value.
[00:29:30] Pete: Yeah.
[00:29:30] Imti: Whereas you don't have that at all with a brand-new apartment-
[00:29:33] Pete: No
[00:29:33] Imti: ... 'cause it's brand new.
[00:29:34] Pete: Yep, and your strata fees are a lot less, which I just wanted to quickly touch on, too. You could be looking at four to five grand a year-
[00:29:39] Imti: Mm
[00:29:39] Pete: ... on these new high-rises, which is only going to get more expensive over time-
[00:29:43] Imti: Yes
[00:29:43] Pete: by a lot because these buildings, to maintain them and the way they're built these days-
[00:29:47] Imti: Mm
[00:29:47] Pete: ... they're not gonna last long in terms of maintenance so that five grand will continue to creep up. But on these red brick units, you-
[00:29:52] Imti: They're a lot lower.
[00:29:53] Pete: Yeah, they're a lot lower.
[00:29:54] Imti: Mm-hmm.
[00:29:54] Pete: They'd be less than half.
[00:29:55] Imti: Yeah, and if you're prepared to pay the extra strata, you could just put that into your mortgage repayments for your red brick, and you're paying it off in 10 years less.
[00:30:02] Pete: Yeah, you'd be done.
[00:30:03] Imti: Awesome. So to bring us home, should you buy an apartment? The answer is it depends. But after listening to this, hopefully you've got a good understanding as to when they can be a good investment, when it doesn't matter if they're gonna be a good investment at all, rent money not exactly being dead money, and how to question it in more detail when you're looking at buying an apartment. And then the three steps you need to work through if you have decided to buy an apartment, where is it? Is it the right type of building? And is there more being built or more on the market? Because ultimately it just comes down to if you're buying an apartment and you want it to perform, who's the next buyer? That's probably the biggest takeout if you're looking at buying an apartment. Pete, as always, thank you. For the person who's stuck out until the end, thank you very much as well, and we will catch you next week