Home Buying

Things to consider when buying an apartment or unit

Luke Harris
Sep 13, 2021
Yard Financial Pty Ltd | ACN 623 357 513 | Australian Credit Licence 509481

Table of Contents

Are you a first time buyer thinking of investing in an apartment or unit? 

Like any investment it is essential you do your due diligence and educate yourself so you can make an informed decision. Apartments are a popular entry into the property market for first-time investors, mainly due to their affordability when compared to houses. But buying an apartment is different to buying a house, with a number of hidden costs you need to be aware of. These can all add up and impact the return of your investment (ROI) over the long term.

Read our Q&A explainer which covers all the things you need to consider when buying an apartment, including our buying an apartment checklist. 

Is an apartment or unit a better investment than a house?

As a general rule, houses tend to generate better long-term capital growth, while units or apartments tend to provide stronger rental returns. This will depend on a number of factors, including the location of the property and local market conditions that drive demand. 

Besides being more affordable to purchase, apartments often have more amenities for residents, like leisure facilities (swimming pool, gym, sauna) as well as secure parking. Demand for apartments tends to be high in inner city suburbs, where people want to be close to jobs or education opportunities, and amenities like shopping and entertainment.

Learn more: Easy to understand guide to applying for a home loan online

Let’s now understand what a strata title is, as this is a fundamental part of apartment living and ownership.

What is a strata title?

Apartment’s are a form of communal living, where you own the property itself - called a ‘lot’ - but ownership of the common property (lobby, parking garage, hallways, rooftop etc.) is equally divided between all lot owners.

Apartment complexes are managed under a strata title or strata scheme, which is a legal form of ownership that covers subdivided apartment blocks with shared areas. The practical day to day running of the complex is carried out by a body corporate or strata committee, elected by all owners. There are also rules or bylaws, which all owners and occupiers must comply with. These cover life in the complex, including use of common property, as well as noise levels and rules around renovations. As an owner, you’re also responsible for a share of the upkeep and maintenance of common property, and be required to pay strata fees or levies to cover this.

Other types of title, which are less common, include company title, where owners own a stake in the company rather than the actual strata title; and stratum title, which is a combination of company and strata title; where a company owns the common property. Many lenders don’t provide loans for company title and stratum title properties so it’s important that you find out the apartment’s title early.

Now that you have this essential background, let’s now cover all the questions you need to ask before investing in a unit or apartment. 

Buying an apartment checklist: Strata fees, owner’s corporation finances, strata title searches and more

The more information you can obtain about a strata scheme or body corporate the better. You can use these questions as a starting point for your research.

How much are strata fees?

The quarterly strata fees, or levies, which cover the cost of maintaining an apartment complex’s shared areas are a significant (hidden) ongoing cost you need to budget for. These are charged proportionate to the size of the apartment, and will vary depending on the number of units in the complex, how many common facilities need maintaining - and how efficiently the strata plan is run. They cover building maintenance, common area maintenance, building manager wages, cleaners as well as building insurance.

Some strata schemes charge very low fees but have little set aside to fund ongoing maintenance, and resort to revenue raising via special levies. Others have higher strata fees, and put aside funds to cover regular maintenance or emergency works. 

What is the state of the owner’s corporation's finances?

Besides knowing the annual owners corporation fees, you also need to dig deeper and ascertain the state of the strata scheme’s finances. Questions to ask include if the owners corporation has a maintenance fund, if they are in debt and what the annual cost of building insurance is. 

You should also find out if any capital improvements - expensive large scale works - are planned, as these could be another potential hidden cost to factor into your annual budget. You can obtain this information by looking at the most recent minutes of recent strata meetings, available via a Strata Title or Strata Plan Search.

Do I need to pay for a Strata Title Search?

A Strata Title or Strata Plan Search can give you crucial insights into the workings of an apartment complex and the body corporation that manages it. Besides highlighting the financial health of the building, including if there are funds set aside in an Admin Fund or Capital Works Fund - it can also shed light on any major building defects or large (expensive) capital works that are planned. 

You will need to hire the services of a professional Strata Inspection business to conduct the search, an expense which is well worth the investment. They can also help you interpret  and understand the information included in the search report.

What lifestyle factors do I need to research?

Apartment living is a communal experience which often means there will be more people living around you, with implications for noise and security. Research the layout of the building, as well as the demographic of the residents and culture before you buy. A high proportion of renters vs. owners could mean a more transient experience, with lots of comings and goings and less sense of community.

Other practicalities to look at include the building’s location and its proximity to local amenities such as transport, shops, green space and your workplace. Visit the building to confirm the amenities it has, including elevators for access, car parking spaces as well as the overall security and ‘feel’ of the building.

What do I need to look at in the apartment?

Like any home you need to visit an apartment in person to see if it meets your needs from a layout and space perspective. Remember that you are limited to what renovations you can carry out in an apartment complex, so if significant structural modifications are required it may be better to continue your search. Practical elements like the amount of natural light, ventilation and storage should all be at the top of your list. 

You should also look for any potential structural issue, like cracks in the walls or ceilings, as well as the presence of mould. High density living also means you should identify how soundproof the building is, and how well your unit is insulated from noise - either from the street and/or your neighbours. 

What about buying an apartment as an investment property? 

If you are looking to purchase an investment property, many of the items we have covered above are equally relevant. You will however need to undertake some additional research to identify if there is sufficient demand for rental accomodation in an area. Here you can look at property and market data, like vacancy rates, to give you an insight into this metric. 

You will also need to qualify for a home loan - in this case a dedicated investor home loan. These typically have slightly higher interest rates than owner-occupier home loans, so you need to be sure you can qualify for this, and afford it. 

Armed with this knowledge you should know what to expect when buying an apartment. You can also make use of the tools on our site to help you work out how much you can borrow or what your setup costs could be. 

Have any other questions about buying an apartment? We’re happy to help, and our local team are available to chat at a time that suits your schedule.

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