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Does size matter?

Does size matter?

When it comes to property investment, size isn’t all it’s cracked up to be. At least not in the traditional perception of big is best. One-bedroom apartments, particularly in inner city areas, are increasingly popular with tenants – and investors are taking note.

One-bedroom apartments are often cheaper to buy than their two-bedroom counterparts, but can achieve similar rents and therefore provide a better return on investment, according to property experts.

“Traditionally if you compare studio apartments, one-bedroom apartment and two-bedroom apartments, the studio has the strongest rate of return, followed by the one-bedder and then the two-bedder,” says real estate agent Mark Dawes, director of Richardson & Wrench South Sydney.

In the inner Sydney suburb of Potts Point, Sydney Links is currently selling a one-bedroom apartment for offers above $350,000 with a potential rental return of $470 per week – which would deliver an impressive rental yield of 6.78 percent.

From a capital gains perspective, one-bedders are also comparable to larger apartments. While in the past, two-bedroom apartments would provide a better capital gain growth than one-bedders, that is no longer the case, according to Dawes. “They tend to rise at the same rate,” he says.

On the other hand, some lenders may be less willing to approve a home loan for a studio or small one-bedder apartment, as size requirements may apply. So it’s worth shopping around, comparing home loan features and asking these questions before you get your heart set on a property!

Trend towards small

The popularity of smaller apartments can be explained by the shrinking size of Australian households. Census figures from the Australian Bureau of Statistics show that the proportion of one-person households increased from 16 percent of all households in 1976 to 24 percent in the 2006 Census, and is expected to rise to 28 percent by 2031. The proportion of two person households increased from 28 percent of households in 1976 to 34 percent in 2006.

Property developers have also caught on to the trend, with a rise in the number of one-bedroom apartments being built. Currently attracting a lot of interest, a new development in Surry Hills, called Short Lane, is made up entirely of one-bedroom apartments.

On the other side of Australia in Perth, new-build studios and one-bedders are also popular, according to the Urban Development Institute of Australia, with 28 percent of recent new apartment sales being studios and one-bedroom apartments.

A question of budget

For most investors, the size of the property they buy comes down to budget, Dawes says. “If you’re going into the inner Sydney market with $500,000 to spend, you don’t have a choice – you’ll be buying a one-bedroom apartment. But if you have a higher budget, you might as well buy a two-bedder with interest rates being as low as they are now. It will give you more scope for growth.”

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Learn more about home loans

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.