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Are older units a good investment?

Older units can be seen as a low cost way to get into the market in inner city locations but will they deliver on your longer term investment objectives.

Many older-style apartments in Brisbane and the Gold Coast are currently struggling with capital growth. A review of unit resales and a look at the longer term trend of median unit prices in a number of inner city suburbs indicates that growth has been limited in many cases below the rate of inflation.

The challenge for established units in many inner city areas is potential growth can be undermined by the continued introduction of new stock. When you consider that 200 plus apartments can be built on a site not much bigger than 3-4 suburban blocks the risks of over-supply can emerge fairly rapidly.

Substantial and rapid increases in supply can stall or even drive down prices and have a similar impact on rents with low rental growth or extended periods of vacancy.

Obviously if a large amount of new units hit the market and many of the buyers are investors then they will all be keen to get their properties rented. If you are prospective tenant and you have the choice of a new apartment with modern fixtures and fittings with a good position and outlook as opposed to an older apartment for no more rent the choice is pretty easy.

This means owners of older units need to reinvest with upgrades to kitchens, bathrooms, paintwork etc to keep their property competitive. That could mean an outlay of $15,000 - $20,000 which is a big hole in the cashflow. And as it is capital expenditure it is not immediately tax deductible.

Plus it could mean the body corporate as whole needs to reinvest in the property to keep it fresh and appealing which could mean further contributions into the sinking fund.

Capital growth is important but it is your contributions along the way to hold that property that will determine whether you hold that property for the long term.