Lessons in apartment ownership

I’ve now been the proud owner of an apartment for nearly 7 years and it’s been a journey of continuous learning for me.

As with many things in life, you often learn more when you have your money tied up in an investment.

Apartment ownership comes with several positives and negatives, so I’ve taken the time to delve into these throughout this article.

A second class citizen?

The first thing I learned about living in an apartment is that most Australians still think this is some kind of suboptimal lifestyle.

It’s sad to say…Most people tend to look down on apartment occupiers.

“Ohhh, you live in an apartment? How do you cope, it must feel like a prison”.

“I could never live in an apartment. I need to feel the grass beneath my feet”.

All things said by people that are mortgaged to their eyeballs, people that will spend the next 30 years paying off a house where they don’t use half the rooms they own and who never go outside.

Don’t even mention the possibility of raising a kid in an apartment, that’s sacrilegious to the Australian way of life.

Despite apartment being mainstream and often necessary in other countries, Australians remain obsessed with their quarter acre block of land.

This attitude has always surprised me because the appeal of apartment living is so high for me:

• You are not personally responsible for yard maintenance

• Your facilities may have a pool or tennis court maintained for you

• Apartments are generally located in trendy, inner-city suburbs close to public transport and jobs

The financial appeal of apartment living is also huge.

Generally, apartments are much more affordable to purchase than their land-based peers.

This can make ownership more accessible and in my opinion, ownership is much better than renting in the long run.

With a lower mortgage, less of my repayments are for interest, meaning I am reducing my principal at an accelerated rate. My net wealth continues to increase with each repayment.

Further, as the repayments are lower, more money can be put towards other investments, which typically provide better returns than property.

As your ability to retire is affected by your living expenses, and given how affordable apartment living can be, I believe it can appeal to those looking to retire early.

Acknowledging challenges with apartment ownership

There are however downsides with apartments, and I think some of this comes from the way Australians approach property.

The first issue is that there seems to be much resistance to updating the external appearance of old buildings. There are countless examples of apartment buildings needing some love and effort put into updating the exterior of the building. Doing so would not only increase the capital value of the dwelling, but also increase rents as well.

The issue herein lies in the owners of the building. In my experience, it remains extremely difficult to obtain agreement to spend money on updating the exterior. There’s always opposition.

Most don’t want to spend the money, some can’t afford to spend the money, some people like it the way it is. Others may want to do an update but have a difference in opinion on what should be done. As often tends to be the case, the issue is one of people and not the building itself.

If you are interested in holding your apartment long term, I’d encourage you to nominate yourself for the body corporate, so that you have more control over the decisions that are made. Little things like progressively increasing the sinking fund may make future exterior modifications and renovations more probable.

Most apartment dwellers do appear to be renters. This carriers some inherent downsides because as you know, no one looks after your property the way a home owner does. That’s not to say all renters are bad or messy people, but when you own an asset, you tend to look to the long-term when it comes to renovations, landscaping, cleanliness etc.

If you live in a ‘premium’ apartment block, it doesn’t take much for it to become suboptimal with a few bad eggs in the building (owners included). Things such as not bringing in bins, leaving rubbish in inappropriate places, and general untidiness with storage all detract from future tenants paying a premium price for renting the dwelling.

As so many apartment owners are investors, they aren’t living in the property themselves so may not be as appreciative of things such as landscaping costs, external cleaning and the like, all things which can lead to higher rents and better capital growth.

Deemed to be the big downside of apartments, body corporate costs aren’t always as bad as they seem.

Body corporate fees include a range of costs such as landscaping, external cleaning, building insurance and maintenance.

The amount you pay for the body corporate is usually made up of numerous factors, such as whether the property has a pool, whether there is an elevator and whether there is an onsite manager. The more of these big ticket items you have, the more you can expect your body corporate fees to be.

When selecting my apartment, I deliberately chose a building without a pool, no tennis court, no on-site manager and no elevator, so my body corporate fees are very reasonable.

When looking at body corporate fees, it’s important to not just look at the cost, but what you are receiving as well.

The advantages of apartment living

• Generally more affordable than property in the same area

• Generally better rental yield than a house

• Easy to update interiors

• More effective use of space, and you aren’t paying for space you don’t use

• Forces you to be on top of material possessions. It really shows when you have too much crap in an apartment

The disadvantages of apartment living

• Generally less capital growth than houses

• More neighbours (can be a good thing too)

• Harder to get external changes through

• Body corporate fees

• Some social stigma

Looking to the future, I do wonder if my apartment ownership days have an expiration date. You can’t help but look around and see 30 and 40 year old apartment blocks that look aged and dated.

Will my apartment share the same fate?

On the balance of probability, it likely will.

But in the meantime, I suspect it will be a desirable renter, and the capital value will at least match inflation.