Purchase or Pass? A Coogee apartment with high strata fees

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In our Purchase or Pass segment this week we check out some of the finer details involved with choosing an investment property.

This week it’s a two bed, two bath unit in a very small block of five located 8.7 kilometres from the CBD and 500 metres from the local attractions. The unit features two balconies off the bedrooms and the lounge and is pretty large at 115 square metres. It’s situated on the ground floor at the rear of the block so is pretty quiet away from any traffic.

Chris Gray: What are your thoughts on this?

Arthur Charlaftis: Well it’s quite a large unit for a  two bedroom unit, we always talk about being on a small block so I think that meets the criteria there. I was going to ask you what you thought about ground floor versus first floor.

Chris Gray: That’s a bit of a funny one. We quite often get some clients that say I have to get ground floor or I don’t want to be ground floor because they’re worried about people breaking in so maybe it depends on what suburb you’re in. But obviously some of the ground floor apartments are great because there are no stairs and sometimes you can get off into the back. I’m 50-50 on this one.

Arthur Charlaftis: Obviously the location on this one isn’t going to be too much of issue with the ground floor apartment.

Chris Gray: In the good suburbs I don’t think there’s too many problems these days.

Arthur Charlaftis: It presents well so there’s not much to do. So it depends on what type of investor you are for whether it makes sense for you to do this.

Chris Gray: Exactly. If you have the cash and you want to renovate you can’t really add any value but if you’re really stretching for $750,000, that’s a lot of money, then you can get something that’s really done up.

Arthur Charlaftis: Now tell me about the strata fees, $1,800 per quarter seems very high.

Chris Gray: Yes $1,800 per quarter is quite high. Quite often we’re looking at about $650. So it’s about three times as much. Our graphic of the cash flow here shows the cash flow on this one, assuming a rent of $750 per week, you’re going to be paying $7,200 in strata fees before all your other fees, so your net rent there of $31,800 there are more costs to come out of that. But if you’re only paying $650,000 you could have $36,000 so to me looking at 4.85% net return compared to 4.24%, there’s quite a difference there.

Arthur Charlaftis: So, on an investment basis I’d look at passing on this one.

Chris Gray: This unit ticks a lot of the boxes in that it is larger than most units and in a smaller block in a quiet location. However it’s all about the numbers and high strata fees can make it into an expensive investment. I would prefer an older apartment with lower strata fees and so for that reason I’m going to pass.