Investing In Apartments: Pros And Cons

The real estate market is on a steadily progressive path toward financial growth. People prefer minimalistic lifestyles but luxurious properties. And that’s why apartments are the ideal choice and thus, come in high demand. 

Investment in apartments is perfect for those who prefer an active role in the growth of their capital gains and a good source of passive income. 

The property market has its ups and downs. But apartment investment is less volatile. The increasing population in Australia has caused a huge gap between supply and demand, especially in terms of a settlement. 

This means increasing housing becomes a priority. Urbanization has made apartments the Australian dream residence. And investments in them have also flourished. This demand has proven investment in apartment property to be highly stable compared to other market domains.

Investing in apartments is rewarding but can also be risky. It’s important to weigh the pros and cons before making major decisions. Striking a balance between portfolio value and people who lease the property is essential. 

In this article, we touch upon the realistic boon and bane of investing in apartments.

Pros Of Investing In Apartments

Investing in apartments is perfect for property investors who wish to add to the cash flow through gradual appreciation of their portfolio value. Apartments also bring out the warmth of the community. They make for the ideal home as they have cash security, fewer maintenance responsibilities, and ease with taxes.

Let’s start with the positives and see the relative benefits of apartment investing. 

1. Cash Flow Security

The prime benefit of having an investment property is to put it up on the rental market. Leasing it out is a great way to cover the expenses if you eventually wish to own the apartment you invest in.

You only have to pay for the initial deposit. Your lessee shall be paying rent for the mortgage and added expenses after that. And the house will be yours without exorbitant home loans. This is secure cash flow from your investment. 

You may even save money from the rent through smart strategies. This means both passive income and positive cash flow. Your positive cash flow enhances as you eventually pay off the mortgage. And you would soon be one of the owner-occupiers.

Inflation will make the property prices roar high. The rents will also increase given your investments align in the correct area as a result. In other words, your cash flow goes up because you receive higher rent. And your mortgage value remains constant or decreases on the other hand.

Good investments and enough time make for a secure cash flow as a source that funds your lifestyle. 

2. Low Maintenance Costs

Another advantage of investing in apartments is the fewer responsibilities and lower maintenance costs. Investing in a house means not only having to maintain the interior property but also external appearances.

When you buy an established apartment block, the maintenance is done by a joint organization called the strata committee. You pay the contributions for the maintenance as strata costs, also called body corporate fees. 

The strata fees for investing in apartments typically cover:

• Maintenance of the building
• Insurance of the building
• Maintenance and cleaning of all common areas
• Caretakers, guards, etc.
• Shared electricity and water

3. Deduction In Taxes

Investment in apartments is an excellent choice when we talk about tax benefits. There are several benefits for claims based on the investment. It can be offset against your income if your property investment loses money. This is how the investment saves you from tax.

Other claims such as depreciation on fixtures and fittings amplify the tax savings. You can even claim annual visits as the property inspection and collect accommodation for the duration.

Cons Of Investing In Apartments

Apartment investment and renting offer a guaranteed source of income and reduce the risk of high vacancies. But it can turn into a high-risk investment as well if not handled responsibly. 

Let’s understand the potential disadvantages of investing in apartments in detail.

1. High Initial Costs

The entry point in the real estate domain is usually expensive. Property may cost you several thousand dollars to merely get in the market domain, especially investing in posh or high-rise apartments.

Getting to the market is extremely difficult with property prices on a constant rise. This initial high entry cost causes a lot of investors to back out. That’s because you can’t invest if you don’t have money to back you. 

2. Less Liquidity

Once you have begun investing in apartments, selling may prove to be a challenge if you run out of cash flow. Lower cash flow makes selling hard, and you wouldn’t want to have to sell the property at a loss. 

Apartments are presently moving upward in the graph of performance classes. This means you shouldn’t discount investment in apartments in your strategy.

Shares can be sold at a moment’s notice. But properties take longer than that. Factors like area, location, and so on may lead the sale duration to last for weeks or even months. This evident lack of liquidity can pose a threat if you require immediate money. 

3. May Have Strata Issues

Investment in apartments means having to deal with the body corporate or strata. Not all strata are created properly and equally. This could mean they may cause potential issues.

Bad strata management can be highly troublesome and dissuade potential rentees.  Issues such as disruptive communication between the tenants and the owners with the intrusion of third parties can cause a bad reputation in the market. Arguments about common property maintenance, insurance, and inefficient tracking of records also lead to problems with loans.

Issues such as mismanaged records and strata fees may lead to potential disputes. This could further result in the forcible enforcement of rules. This again stains your investment image in the market.

How Can An Advisor Help In Apartment Investing?

Investing in apartments can seem daunting, especially if you have less to no experience with real estate. Consulting an advisor who understands the market, your background, and your budget boosts your stance as a property investor. 

A good advisor firstly focuses on your individual needs, goals, and circumstances so that together you can find the best property investment that’s right for you.

It is a smart strategy that should be pursued responsibly. With proper guidance from expert advisors, such as Quarter Acre, anyone can understand the risks and rewards. They possess a positive attitude towards investment and property management. This gives you power over your investment portfolio, which can be the key turning point to sway the pros of investing in apartments in your corner.