Investors need to look at more than just the home loan products available to them. The type of investments they choose will impact on their success.
Many investors prefer to invest in strata-titled properties rather than freestanding ones. There are plenty of reasons for this, but let’s first examine what a strata-titled property is.
Explaining Strata-Titled Properties
A strata-titled property is usually part of a larger complex of properties. These properties all share the same building. For example, an apartment may be a strata-titled property. Strata-titled properties can extend from two-floor blocks of residential flats, through to hundreds of units in the same apartment complex.
They differ from freestanding properties because they share their floors, ceilings, and walls with other properties.
You need to consider your own circumstances before choosing between strata and freestanding. A real estate professional can help with this, but there are some basic pros and cons you should keep in mind.
The Pros of Strata Investing
Let’s start with the pros. You benefit from all of the following with a strata investment:
● Lower costs of the property in relation to the land it occupies. This compares well with the land cost of a freestanding property.
● High demand from buyers. Strata properties generally sell for less than freestanding homes. This should lead to capital growth over time, assuming you make wise investments.
● You will pay a strata levy each quarter alongside everybody else who owns a property within the complex. This divides large maintenance costs across several people.
● Lenders favour strata properties, which makes securing a home loan simple. Many lenders will offer a loan to value ratio of 95% on strata properties.
The Cons of Strata Investing
Strata investing isn’t perfect, as there are some downsides you need to keep in mind. Consider the following before committing your funds to them.
● Even though strata levies can save you money, they can still be quite high. This is especially the case for more advanced complexes. Levies increase with extra features, such as fitness facilities and lifts.
● If one block owner sells at a low price, you may find your strata property loses value too. Unfortunately, such issues are beyond your control. This is a risk inherent in strata investing.
● Noise and other disruptions from neighbours may cause problems.
What to do next
As you can see, there’s plenty to consider before you secure a home loan for a strata investment. Your personal circumstances will determine whether a strata investment is right for you. While considering your decision, you should do the following:
This information is general in nature, and you should always seek professional advice when making financial decisions.
Looking for a home loan? Take the Better Deal challenge...
We're so confident about the home loan deals we offer, that if you find something better, we'll pay the difference for a year. Learn more