Type of investment

Apartment block or single flats?

Purchasing an entire apartment block can be a better option than acquiring single apartments, in terms of price per square metre, management costs, financing terms and legal fees. Owners of individual flats must defer to the owners’ community and adhere to its rules and decisions (for example, possible bars on short-term letting). When owning an entire block, you have more freedom to decide on whether to spend money on maintenance, add value or renovate.

You are also free to opt for a divisional declaration then selling single apartments to potentially achieve a greater value than your original investment. However, this strategy is questionable as, for a well-valued property, steady capital growth and stable rental income provide prospects of long-term yield or the option of a faster sale of the complete building.

On the other hand, by owning a single apartment block, the investor is bound to a single location. Buying single apartments or several apartment packages in different locations diversifies the risk of choosing a location that underperforms in the long term. Selecting the right location is critical.

Ratios in mixed-use rental properties

In purchasing mixed-use properties, the ratio of residential versus commercial space must be considered. The commercial proportion should never exceed 30%. Most commercial spaces are rented to a single tenant which has agreed to a long term commercial rental agreement to minimise the costs of the lease. Should this tenant be unable to fulfill the contract, due to bankruptcy for example, this will have a severe negative effect on your cash flow. It is generally much easier to find short- or long-term tenants for residential leases than for commercial space.

Profit is always in the purchase

This simple rule applies to all property purchase. In-depth market knowledge is essential to acquiring properties at below-market value. For example, properties with a sitting tenant are often 30% lower than vacant properties in the same location.

The price of properties in need of some refurbishment is usually more negotiable, with the cost of bringing them up to a marketable standard often less than the discount on the purchase price – putting you ahead if you are prepared to undertake the necessary improvements. Apart from the benefit of a reduced purchase price, there is the opportunity to achieve a higher rental from a new tenant after renovation.

Foreclosures are another option for purchasing property under market value, although this may come at the price of greater risks attached to the property due to its standard and/or potential legal obligations.