Is Buying an Apartment a Good Idea?
Someone asked Propertytoolbox about whether buying a cheap apartment was a good idea. The theory being that the apartment would be a way to get onto the property ladder (they could afford the deposit and the mortgage repayments), it would only be held onto for a short time, it would grow in value, and then could be sold and the extra cash could be used to buy a nice home.
This is an interesting question, and many people do consider this kind of thing, but here are some key things you should bear in mind...
In theory an apartment should be easier to save a deposit for, as they are in general cheaper than your average residential house. But, in the majority of cases banks will not lend you 80% on an apartment, these days the figure will be 50%-70%! So a bigger deposit is needed and this straight away indicates that even your bank thinks apartments are a high risk investment.
Using the word 'investment' is pretty key too - if the IRD thinks that you are buying and selling a property to make money they will tax your profits - check out this house buying and investment income info from the IRD to find out more about this.
Also there are some additional costs associated with apartment ownership. On top of your usual rates and insurance you have body corporate fees and these are not cheap! Body corporate fees are basically your contribution to the upkeep of the shared areas of the apartment i.e. the exterior, the grounds, the lifts etc.
There is a great guide put out by Auckland regional council about the body corporate it is an eye opener! One of the worst assumptions you can make when buying an apartment is that the body corporate fees will not go up! This ongoing cost, when added to the other regular expenses of mortgage, rates and insurance makes for a hefty monthly bill.
Also, there is an assumption that your apartment will increase in value over (a short?) period of time, this is something nobody can predict. The housing/apartment market could go either way, or stay the same... And, that home you want is changing in value to...
Finally, all apartments are definitely not created equal! When you are looking at an apartment to buy - do your research carefully. Cheap apartments are usually cheap for a reason.
These are just a few things to get you thinking about apartment buying. So before you leap into apartment buying because it seems affordable, have a good think about why you are doing it, it may be better just to save more of a deposit, or maybe you need to think a bit more about what you really want in a house - maybe with a bit of compromise, a good house, with potential to be a good home is available and affordable...