Buying bulk – Apartment blocks in Sydney’s East
Investors are scrambling to buy entire apartment blocks to renovate in Sydney’s eastern suburbs making them a great long-term investment but difficult to find.
Back in 2015 we saw the emerging trend of buying an entire block of apartments and the renovation of each of its units to either rent them out or sell them individually at a profit.
It is quite common for companies, family trusts or developers to approach Cohen Handler for assistance in helping them acquire such an apartment block in Sydney’s eastern suburbs.
Recently inquiries of this type have increased but stock has become extremely scarce and this type of sale has become a rarity.
In recent years there has been such rapid growth in the east that any investor who has managed to achieve the purchase of an apartment block would be well and truly ahead in the property game.
According to Cohen Handler’s buyer’s agent Daniel Trelease who specialises in the eastern suburbs market, in the past 24 months he has seen a large increase in the number of units being renovated and flipped to meet the growing demand.
Win-Win for Buyers and Sellers
He said that many apartment owners are banding together and selling off their properties as one package rather than targeting individual buyers.
As a part of the recent strata legislation overhaul, just 75 per cent of owners are now needed to vote to collectively sell and redevelop their block. Previously, just one dissenting vote could have stopped this.
Daniel said that while many buyers were still interested in unit blocks throughout the eastern suburbs, they need to be aware they are overvalued unless the intention is to hold them as a long-term asset.
“While it’s great to have sophisticated investors in the market, it also unfortunately means more people with diverse needs and goals who have to be convinced to part with their valuable asset. Many of these apartment owners would like around $2 million more then what the block is currently worth. Why? It’s the opportunity cost behind it that will be realised in 10 years when they are then worth much more,” Daniel said.
While it is natural that people don’t want to overpay, he added that the capital growth in the long-term would be worth it.
“You are investing in consumer confidence and the low stock availability rather than simply bricks and mortar.”
Eastern Suburbs Always On-Trend
Sydney’s eastern suburbs have had wide appeal for many decades combining as it does a perfect mix of desirable attributes including its proximity to the city, airport, harbour and beaches with the added bonus of great restaurants, bars and entertainment options.
Apartment blocks, especially around the Double Bay area near the water are always popular rentals or do well as individual sales to downsizers who are willing to spend more for beautiful spaces and a great lifestyle and are less concerned about maintaining a larger property.
According to Daniel, while there is a large number of art deco blocks in the area, investors often approach these with caution. Many of these blocks are built on steep slopes so there isn’t the option of building up or out restricting it to the existing layout.
“In addition, you might be able to sell a decadent garden apartment at ground level and a snazzy bachelor style pad penthouse at the top, but there will inevitably be a couple of units in between that have no balcony, no view and there’s not much that can be done to improve the layout,” he said.
Managing a block of units.
Brendan Hay, Head of the Property Management for Cohen Handler takes care of numerous apartment blocks for our block buying investor clients.
When there are a number of owners involved in the ownership of the block it can often make sense to get a strata manager involved to help them write rules and make decisions.
However Brendan says that in some circumstances you may not need a strata manager – it depends how many units are in the block how many people own in the block. Many of the properties on his books are block buyers and the property management division take care of the common areas of the property by paying outgoings using the rent as they go – it’s easy and the investors are happy doing it this way as they have one point of contact.
There is one block of six units in Marrickville that we take care of, the block was bought fully tenanted and when we took over the management the rent was used to complete remedial work to the common areas of the building. This is usually something managed by strata however we could manage the process internally. The work was done well, in a timely manner and there was no middle man involved.
There is an advantage in dealing with one owner because you only have one decision maker to solve any management issues. The owner and property manager can make repairs a lot easier – therefore no strata manager and no strata costs are involved, which means more money in the pocket of the investor in the long run and a good relationship can be maintained.
This situation doesn’t suit all investors and it must be dealt with on a case by case basis.
Turning to Buyer’s Agents for Help
Many properties have been flipped already which means the potential has been realised and the margins are a lot less than they were 18–24 months ago.
Daniel said that due to the scarcity of suitable properties, developers who once would buy three to four properties a year were now reaching out to buyer’s agents to help them source off-market apartment blocks.
“Even from our large off-market pool of blocks that we have sourced after extensive research, in reality only about one out of 20 is worth putting forward to a client as being good value. Buyers need to be aware that while the block idea is still achievable, it’s a lot of work.”
Daniel has some final words of advice for investors looking to buy into the tightly held eastern suburbs market:
- Be prepared to commit to the long-term to see a return on your asset. Buy a block and hold it for 10 years to see a major return.
- Don’t wait for an apartment block to go to market and hope that buyers will drop out when they see that the vendors expect too much. It won’t happen – there is always someone happy to pay the expected price (even if it is $2 million over value).
- Car spots in the area are at a premium so bear this in mind when buying an apartment block. A block of 10 units on a busy street where there’s no parking available either onsite, or offsite, will mean your value will be capped.
Cohen Handler can help you find the right property at the right place. If you are interested in buying an apartment block in Sydney’s eastern suburbs, contact us today.