Top five worst property investment ideas: SQM Research

The top five worst residential real estate investment ideas include cruise ship suites, retirement villages, property in mining towns, lifestyle properties and overpriced off the plan apartment developments, according to SQM Research.

SQM Research managing director Louis Christopher said the idea of investing on a cruise ship has the downside of not buying on any land at all and boats tend to depreciate rather quickly.

He says he has not seen a single retirement village investment make money for the retiree and likens investing in a retirement village to sucking the financial blood out of poor retirees in their last years of life.

"It is possible to earn a cash-flow from holiday makers (on a cruise ship) but from what I can see, that type of cash flow return needs to be in excess of 10% net just to take into account this real depreciation. And I am not aware of any cruise ship suite offering that type of net rental return," he said.

"The problem with retirement village investment starts with the fact that in most of these properties one is buying into a leasehold arrangement. That’s right, you don’t actually “own” the underlying land.  Often the manager behind these estates has complete control over costs and worse, resales. Often one has to resell back to the manager or at least sell via the manager for which they of course take a generous fee.

"Unless you have trucks of money to spend and just want to be around like minded seniors, do not invest in these 'properties'. You are far, far better off living it up in a hotel!"

Golf course estates, semi-rural lifestyle estates, holiday homes, he said, are aimed towards 'lifestyle,' rather than 'reliable real estate investment', with many overpriced with body corporate fees and other management services fees to match.

Mining town housing markets are the classic one trick pony town markets and completely reliant on one single economic base that may or may not provide stable returns.

Buying overpriced off the plan apartments with top of the line fixtures is problematic as you can pay a premium to enter the market. He said there is a good reason  why the ATO allows for a 2.5% depreciation benefit to these types of properties

"And that’s because they can depreciate," he said. 

Top five worst property investment ideas

1. Cruise ship suites

2. Retirement villages

3. Mining towns

4. Lifestyle properties

5. Overpriced off-the-plan apartment developments