Over the last few weeks, we talked about various types of properties that you could invest in to start your property investment journey and all of which are ‘mainstream’ strategies. This week, we will look at some special purpose property strategies.
The main advantage with serviced apartments is that they are less taxing on your time. As they are managed on your behalf, you do not need to worry about tenants and maintenance yourself and you can usually command a higher rental return if the property is managed properly.
The drawback is that it is harder to get finance for these types of properties. The main reason is that they are classified as commercial property. Commercial lenders will not approve the same loan LVRs as they would on residential properties. Typically the LVRs are around 65 – -80%.
They can also be hard to resell given that the market for serviced apartments is not nearly as large as the residential property market. Moreover, their capital growth is tied into rental yield and how well it is operated, not necessarily reflecting local property prices. In other words, the value of the property is affected by the financial viability of the operator, which is typically not something that you can control.
Display homes are usually built to above standard quality because they are used by developers to showcase their design and level of finish. You can secure a higher rent than normal properties, which is guaranteed for a contracted period because the developer will continue to use the property. Your maintenance costs are non-existent for the contracted period and there is no need to look for tenants.
On the flip side, display homes can be overpriced in compensation for the fact you are receiving a guaranteed rental return that is higher than the market rate. You need to be careful as the developer’s financial viability can affect the rent they guaranteed.
It also can be hard to obtain finance from some lenders due to difficulties with obtaining an accurate valuation and the commercial nature of the arrangement you are entering into.
Much like serviced apartments, student accommodation that is managed can achieve a higher rental return if it is managed properly. Similarly, you do not have to worry about tenants and maintenance.
The biggest advantage over serviced apartments is the purchase price. Student accommodation is typically more affordable.
Student accommodation can be hard to resell sometimes due to its special purpose nature. Like serviced apartments, their growth is dependent on the rental yield and how well it is operated, not necessarily reflecting local prices. Many lenders are reluctant to lend on student accommodation due to the size of the property as student accommodations are frequently studios or 1-bedroom apartments less than 40 square meters.