Buying Special Purpose Property Investment Strategy

updated 4th October 2016

Investing in Serviced Apartments

Upsides:
The main advantage with serviced apartments is that they are less taxing on your time. As they are managed you don’t need to worry about tenants and maintenance yourself and you can usually command a higher rental return if the property is managed properly.

Downsides:
The draw back 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 won’t give you the same loan LVRs as they would on residential properties. Typically they 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 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.

Investing in Display Homes

Upsides:
Display Homes are usually built to above standard quality because they are used by developers as their showcase. 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 also no need to look for tenants.

Downsides:
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 get finance from some lenders due to difficulties with obtaining an accurate valuation and the commercial nature of the arrangement you are entering into. On top of this these types of properties are usually in outer areas which have historically displayed slower long term capital growth.

Investing in Student Accommodation (Managed)

Upsides:
Much like Serviced Apartments, student accommodation that is managed can achieve a higher rental return if it is managed properly. Similarly you don’t have to worry about tenants and maintenance.

The biggest advantage over serviced apartments is the purchase price. Student accommodation is typically more affordable.

Downsides:
Student accommodation can be hard to resell sometimes due to its special purpose nature. Like serviced apartments their growth is tied into yield and how well it is operated, not necessarily reflecting local prices. The value of the property is also affected by the financial viability of the operator. A lot of lenders are reluctant to lend on student accommodation due to the size of the property as student accommodations are frequently studio’s or 1 bedroom apartments less than 40m2.

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