The Ins and Outs of Buying an Apartment

Thursday, July 24, 2014

I know some people in Melbourne who bought an apartment a couple of years ago. A young brother and sister, buying their first place to live in for now, pay off, and then rent out as an investment nest egg later on.  It's a great little place in a funky street and all was initially well.

But then there was some urgent maintenance work needed on the outside structure and they were hit with a massive body corporate tab. They are both professionals and earning well, but, such was the expense, they had to borrow from family to cover the costs. I know they were pretty stressed about it and even a little shocked.

All is fine for them now. They are still there and all is going well again. But the experience does highlight an example of what to consider when buying an apartment and the differences between buying a house and buying a unit. The above story is all more pointed as one of the parties is a lawyer and the other is a real estate agent. If they can get caught out, well, anyone can.


Spotting the differences: apartment living

Apartment living usually means residence is high density areas, and so the lifestyle is different to urban areas full of houses. Space is tighter and everything tends to be closer. This can be great if what's closer is a great cafe or bar and fabulous shops. It's no good, of course, if your block is near the local drug dealer's meeting place or above a cheap and smelly restaurant.

Apartment ownership is different in other ways, too. Units tend to foster less headaches over the maintenance of the building itself and in dealing with council regulations and upkeep of the surrounds - much of this is often taken care of by the corporate structure administering the block. But, such decisions are made by the ownership group and may not fit with an individual owner's budget and timing.

This underpins probably the most important point to make when buying a unit or an apartment: you are buying the space you dwell in, not the structure itself. The actual physical unit always belongs to the collective ownership which you buy into. As an owner, you become one of the collective owners of the bricks and mortar and you have rights and obligations (as my friends above discovered) as part of that structure.

So, whether you are renting out your apartment as an investment or living in it, you will need to recognise that you are purchasing a piece of a community and the best means of making that work is by understanding how it is governed and by making efforts to participate in it.

Before buying an apartment, then, there's a number of conditions you will need to check out which probably wouldn't apply if you were buying a house.

Contractually, strata purchases have the potential to be complicated. By-laws governing body corporates vary across jurisdictions and property developers are often adept at finding loopholes or – it has to be admitted – sailing too close to the wind financially, or not providing the unit experience promised.

So, getting legal advice is important. Probably the best way of doing that is by getting a Strata Inspection Report. According to, such a report should cover the following:

  • The books and records of the strata scheme
  • Notices served on the strata scheme including any court or tribunal orders
  • Minutes of general and executive committee meetings
  • Accounting records including income and expenditure records
  • The approved budget and levy instalments
  • The certificate of title and registered copy of the strata plan
  • Up-to-date insurance policies
  • Managing agent records (if there is a strata manager)
  • Other supplier agreements


But, there's also a range of things not covered by the contractual small print you will need to consider. For instance, details like: can you hear your neighbours talking? are the bin areas too close to your place? do you have adequate parking? can you have pets? what's the procedure for dealing with disputes between unit owners?

This checklist from Consumer Affairs covers a pretty comprehensive run-down of the likely concerns to tick off.

Entering a unit purchase as an investor raises different issues than if it was a house. It's likely that, if you're renting out your apartment, you'll be able to be a little more distant and removed from the day-to-day stuff as this is largely taken care of by the body corporate - assuming of course you don't get so laid back as to forget to pay your fees etc. A home renter will often have to be more hands on and will need to pay closer attention to on-going issues.

As an investment, apartments show little variation in returns in comparison to houses, as this article suggests. As with most things though, it depends on the data range and the argument over the longer term benefits of owning actual land or strata space, the house v apartment debate, rails on. As such, the potential of an investment apartment most likely depends on a variety of issues surrounding location and entry cost as much as on what type of dwelling it is.

It's worth noting however, that the popularity of unit living is increasing as house prices become unaffordable for many and as work culture changes to a more service-oriented, urban based economy. These shifts to more city-based work and to the growing popularity of a more cosmopolitan lifestyle suggest investments in apartments taps a genuine trend.

Large growth areas, however, can suffer gluts as more seek to capitalise on the boom. Most major cities in Australia have reported over-development in some areas, leading to poor resale values, lower rents and community problems. Over-commitment by some developers has also led to mini-busts as companies collapse and pull down the market. Like any investment, timing is key and homework is essential.

My friends in Melbourne certainly learned a valuable lesson in apartment living. That all happened about 18 months ago and last time I was in Melbourne a few months back, I stayed there and they are still loving the experience. Their commitment to apartment living, with its trams outside the doorstep, cafes and restaurants seconds away, and all-round compact lifestyle is undiminished. And, for all their planning and future-gazing, it's personal, too. Whether it suits you too relies on many factors. But perhaps the most important factor on buying an apartment is whether it is right for you personally.