Why buy a one-bedroom apartment?
They believe that the number of buyers for such properties is also limited, which places more pressure on the apartment to achieve a higher rental return.
For example, they believe if you pay,
say, $400,000 for a one-bedroom apartment to get a 5% rental return you need to
achieve $384 a week in rent. IN FACT,Statistics prove that the opposite may be more accurate..
But look at, say, a $500,000 two-bedroom apartment (it is usually appprox. $100,000 for the extra bedroom) and to get the same percentage rent return they would need to achieve $480 per week, or if two people sharing just $240 per person.
They believe that this “affordability factor “means that a two-bedroom will be easier to rent out.
This argument certainly rings true if the apartment does have two people sharing. What this argument overlooks, however, are two huge groups of renters."
The ABS (Australian Bureau of Statistics) says: "Over the last 20 years, households and families have become more diverse. There has been a decline in the proportion of families with children, a trend towards smaller families and an increase in the proportion of people living in couple only and lone person households."
Now, further statistics from the ABS show that an amazing 24.4% of all households in Australia comprise single occupants. In number terms there are 7.5 million private households, so 25% equates to 1.87 million households!
Changes in society have seen more people
more likely to postpone partnering and childbearing, more likely to be divorced
or separated, and more likely to live longer than previous generations.
The ABS goes on to say:
“Changes in living arrangements reflect these developments in Australian society the biggest change over the last 20 years has been the decrease in the proportion of people living in a couple family with children under 15 years, down from 46% in 1986 to 36% in 2006. The number of people living alone has also greatly risen from around one in 15 in 1986 to almost one in 10 in 2006.”
You should consider the demographics of the tenant market in any area before deciding whether is small or large apartment is the way to go. Areas like the CBD in Melbourne, and South Yarra attract large numbers of wealthy, single people, so a smaller flat may be ideal.
Michelle Galletti, Managing director of "Just Rent" suggests that a smaller, furnished apartment in the inner city and city fringe areas will always experience strong demand.
Martin Schoeddert, managing director of Iris Property agrees that one-bedroom apartments located close to city centres and/or conference facilities are in hot demand.
Recent data from the Australian Bureau of Statistics further supports the benefits of a smaller one-bedroom apartment, as it points to an increasing trend of people living alone.
The ABS report “Household and Family Projections, Australia 2001 to 2026. “reveals that lone person households will show the greatest increase of all household types over the next quarter of a century. The number of people living alone in Australia is expected to increase by between 57% and 105% or from 1.8 million households in 2001 to as high as 3.7 million households by just 2026.
Schoeddert sees no problem in investing in one-bedroom apartments. “I guess in a dream world, if affordability wasn't an issue, then take two or three-bedroom place with a double garage would be great. But the entry-level stuff, I wouldn't hesitate to get into a one-bedroom or a studio.”
Other benefits include:
Affordability
A one-bedroom apartment is typically $100,000 cheaper than a similar 2 bedroom. (this opens up far more potential resale buyers)
Popularity
One bedroom apartments are typically very popular those studying in Melbourne, parents purchase a small one-bedroom for their children, those wanting an affordable city “bolt hole”, country people wanting a city apartments, and young couples.
Apartment checklist (as stated in "YOUR INVESTMENT PROPERTY” magazine, September 2010.
1. Affordable purchase price
2. Good location
3. close to public transport.
4. High rental yield.
5. Strong tenant demand.
6. Sufficient parking slot.
7. Natural light when it North facing aspect.
9. Capital growth potential
JUST RELEASED: NATIONAL HOUSING SUPPLY COUNCIL,2nd State of supply Report (AUSTRALIAN GOVERNMENT)
Now, from the Demographics provided on South Yarra we know this are has the highest profile of income earners in Melbourne, with median family income being $2,351 per week. The genral rule of thumb is that up to 35% of gross income can be allocated to rent. In other words, up to $822 a week!
"The Council estimates that, in June 2009, there were 8.5
million households in Australia. The number of households is projected
to be 11.8 million by 2029 representing a net increase of 3.2 million
households between 2009 and 2029. Around two-thirds of the additional
underlying demand is projected to be in and around four of Australia’s major cities: Melbourne (19 per cent), Sydney
(16 per cent), Perth (10 per cent) and Brisbane and surrounding areas in south-east Queensland
(21 per cent). Changing demographics (particularly a
smaller proportion of couples with children and ageing of the population) is likely to increase underlying demand
for smaller dwellings proportionally more than demand for separate houses." Assuming you purchase a $400,000 one bedroom apartment, and are expecting a 6% rent return, that means the allocated rent is just $461, obviously easliy affordable indeed, representing just 19% of weekly income, allowing for plenty of rent increases into the future. Cost to build: Another little know statistic is the building costs of new apartments.The recently completed URBIS study (National Dwelling Costs Study) by the Australian Government shows that it costs $489,523* to actually build a typical 2 bedroom, 2 bathroom apartment in Melbourne, before any Developer profit. Assuming therfore a typical one bedroom apartment is around $100,000 cheaper, (based on average selling prices) you can make a fairly educated assessment that it would cost $389,523 to build a one bedroom apartment, so anyhting you can buy in a PRIME location between $350,000 to $400,000 is going to represent exceptional buying, especially if it includes a car space, usually valued at $50,000-70,000 in good locations. Makes sense? *Based on Land Acquisition, Government rates
and taxes, professional fees, Land Tax, Rates, Infrastructure charges, Interest
charges, Construction costs, development costs, before any Developer profit or
major marketing expenses. Source: URBIS: National Dwelling Costs
Study Report, prepared for the National Housing Supply Council, January
2010 
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