Do entire apartment blocks make good investments?

 Is investing in entire apartment blocks worth it? With updated compliance demands on apartments and changing rental regulations, many that have been owned by single families for 20, 30, sometimes even 50 years, are being put up for sale.

Some current examples are: A small block of eight apartments on an excellent street in Sydney’s inner west; six art deco-style units in Melbourne’s inner-city Windsor; and a modest set of eight apartments in Brisbane’s West End.

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Most of them are being snapped up by investors who are eager to add value with a quick renovation, and take advantage of the fine rental yields they tend to offer and the capital appreciation of the buildings and the land on which they sit.

“They tend to be very popular investments,” says RT Edgar director Simon Jones. “The returns from six apartments are going to be much better than from a single property and then there’s the 550 square metres of land that will increase in value.

“Later on, you could sell some of them off, and keep some, to give you a lot more flexibility with your portfolio too.”

Jones has just sold the six-pack at 54 Peel Street, Windsor, which had a price guide of $2.85 million.

“The buyer has a plan to improve them over time to increase the rental return,” he says.

The Sydney apartment block on 1250 square metres at 43 Johnston Street, Annandale, which has no price guide as yet, could also be strata-titled later and the apartments sold off singly or kept for the yield.

In Brisbane, the building on 745 square metres at 29 Park Road West at Dutton Park receives over $170,000 a year in rental income and is being sold with a guide of between $2.5 million and the low $3 millions.

“It’s a good block, close to the city, and as well as that rental income and its future growth, you also have the value of the land to consider,” says Ray White West End agent Adam Edwards. “It would be a very good investment.”

Adrian Wilson, principal of apartment specialist agency Ayre Real Estate, also believes that entire blocks can be a very astute investment option – as long as the building is solid and they’re close to amenities.

Owning all the apartments in one building can be better than investing in apartments scattered over a number, he believes.

“So if you have a particular problem, like a leaking roof, you can manage it very quickly as you don’t have to wait for a strata committee to decide what to do,” Wilson says.

“You can also add value easily by renovating or improving the apartments and the lobbies, which will also increase the yield.

“Blocks like these definitely make sense for a lot of investors and you’ll often see families getting together to buy them, and paying for them via different entities like their personal funds or super funds.”

It is important to check the age of the building first, however, and assess if there are any potentially expensive issues like concrete cancer or ramshackle balconies to fix, says property investment strategist Lloyd Edge, the managing director of Aus Property Professionals.

“You also need to look into the demand for tenancies, especially if the building has mostly one-bedroom units at a time when renters in that area might be looking for something bigger so they can work from home,” he says.

“You don’t want to buy a building and risk half of the units being vacant.”