I don’t like Apartments, how can they make money! – Property Rant 041

Property Rant 041

It’s a common misconception, that houses are better than apartments rather than seeing them as just a different way to make a return on investment. Once you understand the differences you will realise that both can make money, both have their pluses and minuses.

However with a simple understanding (which you probably already know) applied to this one idea which you need to know to invest successfully you can make money from apartments.

Video Transcription:

Hey guys, Property Search… Think Gladfish. I’m Brett Alegre-Wood, and this is Property Rant.

So, today, basically, I think an objection or a question we get all the time, which is, “I don’t want to do apartments,” or “I want to do houses.” Very same sort of thing, which is normally the sort of question. But let’s take a look at it. Because the reality is, why are we saying, “I don’t want to do apartments?”

And normally what I’d say as a professional investor and years of experiences of having sold houses and flats because we do both, is that you don’t understand apartments. Or you may have had a bad experience from one apartment. There could be a whole range of reasons. But basically, it comes down to you don’t understand the dynamics at play between houses and apartments. Now, let’s look at them.

So, actually, what happens in the marketplace is this. You’ll find houses in an area because, let’s face it, if I’m going to choose between living in an apartment and a house, for the most part, people think they’re going to live in houses. Actually, a lot of people by choice now are living in apartments, you know? So it depends whether you’ve got family, all that stuff. But there is a lot of people now wanting to live in apartments. So there’s a definite demand for them. But houses, generally, will go up first.

So let’s say they go up first. In the same market, same area, you’ve got a house and an apartment. The house will shoot up. Then what happens is the house will shoot up to a level where all of a sudden you go, “You know what? I reckon it’s cheaper to buy an apartment than a house.” And then all of a sudden now this will start going up. So, a lot of times it’s not that you don’t want a house over an apartment, it’s more a question of where is the market that you’re looking into at with houses compared to apartments or apartments compared to houses.

Because what you’ll find is then the apartments may go up, and then all of a sudden now you go, “You know what? Houses are very cheap. Let’s go houses.” So it depends on the market. You’ll also find that there will be… Apartments tend to get lots of them built all at once, and then there’s an over-supply. And then what happens is the rent starts to drop so they’re not as favorable. Prices are held down because the rents aren’t going up. And that’s when houses shoot up. So there’s a whole range of issues around that.

Now, yes, there is another aspect to look at. Which is, in a house, generally, you’re not paying a ground rent or a service charge for that. It’s generally a freehold property, so you own it. And people think, “Oh, then there’s no costs associated with that.” Well, I’ll tell you, there is. In the building or in the apartment you have potentially ground rent and service charge. That service charge is for the building maintenance, which is the same maintenance that you’re going to have to do on a house. It’s just that it’s not an external company charging it. You have to manage that. And a lot of people come unstuck because what happens is they have to replace a roof, they have to replace air-conditioning, heating, boilers themselves. They don’t factor those in when, actually, these can be factored into the service charge through a sinking fund and things like that.

So, they’re just very similar, but they’re different. And when you understand they’re different, and you understand the nuances about the apartments, nuances about the houses, you can actually make a fully-informed decision as to whether this is better or that is better.

But in my general experience, neither is better. It just depends on which part of the market you’re in whether apartments are overpriced, houses are overpriced compared to the other investment. And when you start looking at that, actually, you can go, “You know what? Now I’ll be doing apartments. But I think there’s too many coming on the market. So I’m going to back out of apartments. But, look, there’s houses out in the suburbs now that are doing quite well. I’m going to move there.” And then what you’ll go, “Actually, you know what? They’re quite high prices. They’ve gone up quite a bit. But you know what? The city center sort of apartments are looking quite good. I’ll go there.” And it’s a chop and change.

Depending on where the market is. So it’s not about, “I don’t want to do houses. I don’t like houses.” It’s about understanding the rules that apply to each of those strategies.

All right guys. Have a great day. Live with passion.

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.