One potato, two potato…
Many apartment investors set a 2 bedroom minimum for their home hunt and in doing so bypass a large part of the inner city’s market. With our household size still shrinking due to divorce and lower fertility and death rates, we need to keep an eye on what demand there is for each type of home. Prominent researcher Michael Matusik this week claimed that people living alone would soon (probably within 15 years) represent Australia’s largest household type. In New Farm, Bowen Hills and the Valley lone person households already occupy more than 40% of dwellings.
So which is the better investment apartment – 1 bedroom or 2? There’s no question 1 bedrooms are cheaper for tenants. In the 1st quarter of this year median rent for a 2 bedroom in the inner city was $350, while a 1 bedder was just $250. Unless tenants intend to share or somehow make permanent use of the 2nd bedroom it’s an expensive accessory. Any good property manager will tell you right now the smaller (read “cheaper”) apartments are definitely quicker off the mark, but much of the supply available is still skewed to 2 bedrooms. In the 1st three months of 2007 there were 2480 new bonds for rented 2 bedders and 1,704 for 1 bedrooms.
What about yield/returns and capital gain? If we could find reliable stats to measure this we’d be pretty smart cookies! As an example only, our two most recent sales were in the same Spring Hill building – a 2 bedroom sold with a gross return of 5.7% and a 1 bed with 5.5%. So we did the maths on capital gains in that same building. There’s been 12 re-sales of 1 bedroom apartments since completion in late 2005, at an average 23% gain. The 10 re-sales of 2 bedders have reaped their owners an average 16% increase in value. These apartments all had very similar outlooks and the same level of finish and amenity.
Like any marketplace there’ll be trends and shifts, but affordability and shrinking households suggest that while 2 bedrooms will continue to appeal to a broad market, 1 bedroom apartments might be a worthwhile investment for the inner city. And with the money you save you can always buy two properties (we are real estate agents after all!)