Growing number of one person households | What does it mean for asset selection?
I wonder if any investors ever thought about the fact that the number of people living alone in Australia is actually one in four people. So 25% of us actually live in a dwelling on our own. If you think about that internationally, though, it’s actually pretty average. Because if you think about Scandinavia, which is 34%, and Sweden, which is 49% … almost one in two people actually live alone.
So my question today is, ‘What does that mean for property investors where this household type is increasing?’ For me, I think we should strongly consider using one-bedroom apartments as part of our investment strategy. I’ve always said that, if you think about it in terms of the context, we’ve got to get the strategy right first. We’ve got to get the location right, second. And then we’ve got to get the property, third. Quite often I’ve talked about the fact that people get this the other way around: a property first, a suburb second and maybe strategy later.
If I’ve identified a suburb that’s investment-grade and I don’t have the budget to buy a townhouse or a house—or maybe I’m not even able to afford a two-bedroom apartment—my invitation to the investor is consider buying a one-bedroom apartment. Not only do they make for a great investment if you get the right one, but also; you’re obviously buying into an increasing trend with household types in this country.
So what are the advantages of buying a one-bedroom apartment?
The first one is really obvious. It’s affordable to buy a one-bedroom apartment in a great suburb and, clearly, you’re going to save a lot more money than if you buy a two-bedroom or a townhouse or a house—so it’s a clear advantage of buying a one-bedroom apartment.
The other advantage is you can get into a better area. So assume that you’re buying a one-bedroom apartment—let’s call it $400,000 in a good area—or you go 50 kms out to buy a three-bedroom house. The difference is quite dramatic in terms of location; so you’re buying into a much better area. And as we know location will do 80% of the heavy lifting.
Now, as opposed to two-bedroom apartments, there’s reduced strata fees because you get a smaller contribution entitlement within the body corporate. Therefore; as a percentage of the overall fees that they need to collect, you actually pay a little bit less. On the flip side of that, you get a little bit less voting rights when it comes to the body corporate meetings, but I think that’ll balance itself out quite well.
And, of course, if you have a smaller property, it’s lower maintenance. So less money that’s coming out of your pocket, making your cash flow happy.
The thing to keep in mind, too, with one bedroom … it’s not just apartments. I’ve seen one bedroom houses before. They’re quite often small character houses that are one bedroom—so you’re not just limited to one particular asset type.
The other thing I think is an advantage: if you’ve been share-living for some time, you know flat mates. You know what it’s like to live with other people. When you move in on your own, you have a really great alternative to that shared living arrangement, you can have a space of your very own.
But what’s the downside?
Well, the first one is often there’s a bigger deposit. Usually, the banks only like to lend up to 80 percent—and they usually get uncomfortable above 80%—so you need to be sure that you do have that extra deposit.
The other thing is if you have less than 50 sqm—quite often 50 sqm and above is the benchmark for banks to feel comfortable and a lot of one-bedroom apartments are less than this—it actually does have an impact on lending. So I would suggest to someone who is investing in a one-bedroom apartment: make sure that you do stay above fifty square-metres. They’re harder to find, but they certainly do exist.
So what do you actually look for if you’re buying a one-bedroom apartment?
The first thing, for me, is definitely scarcity. I’ve said in many of these sessions, on many of these how-to videos, that you should buy established apartments over brand-new ones. And this still remains because I can get that scarcity. Those older 50s, 60s and 70s blocks—there’s much less of them in the block—and it makes it easier for us to get the good old standard of living and quality of life with fewer people, which I think is a real advantage.
The other thing to look for is parking. Now, if you can get car parking on title that’s going to make your asset stand out, head and shoulders above the rest of the competition. So that’s really, really important to get.
When it comes to the amenities—no pool, no caretaker, no lift, no concierge—do away with all of those things because not having these is going to have a dramatic impact in a positive way on the amount of strata fees that you need to pay. My invitation is to make sure you look for a really good floor plan instead. Think about if you are living on your own and you’ve got a friend coming over: do you actually want them to go through your bedroom to go to the toilet? Or would you prefer the toilet to be separate? Do you want a little bit of a hallway to get to it? As a property investor, these are the sorts of things you should think about. Separate toilet, the little hallway; they will help increase the size, which will get you over that 50 sqm benchmark. Which the banks definitely, definitely love.
The last thing to think about, for me, is having some outdoor space. If you’re living in a smaller area on your own, you do need to connect with nature and the outside world. So, as a minimum, look for a balcony. But if you can, buy one on the ground floor with a courtyard, with a bit of outdoor space, because it is going to make your one-bedroom enormously scarce and, therefore, put upward pressure on the value of your investment.
So my message today is really clear:
One-bedroom apartments are often frowned at by investors, but given the fact that the household type is increasing more and more to loan people households, and affordability is getting harder and harder, I see a real increase in demand for this type of property.
Therefore; I think the investor should embrace it as an asset type in their property portfolio.