Planning the purchase of a property to live in or as an investment is an exciting time. That said, no one wants to acquire an investment lemon. There are few key things to consider when buying a property and one of the best ways to start to identify potential pitfalls is to understand the attitude of the institutions that will fund the purchase.

When you buy a new home, it isn’t really you and the bank buying the property.  In reality it is the bank buying it and you paying them back over the period of the loan.  Certain types of properties present challenges simply because they put at risk the ease with which a bank can recover its money in the event it needs to.  If a property is difficult to sell or to obtain an occupant for then it is a risk to banks money.  By extension it is possibly also a risk to you as an investor.

So here are 3 types of properties that might present some challenges when it comes to getting a loan.

 

1. Apartments Smaller than 40 Square Metres

While there is debate about the exact cut off size of the property, as a general rule banks are reluctant to offer loans on “dog box” size apartments.  The main reason being that their marketability is limited due to the very small size.  Basically if the bank finds is in a situation where they need to get their money back, they want to be able to do that with a minimum of energy and time.

Also consider that calculating the 40 sqm won’t include the balcony or car space.

 

2. Serviced Apartments

Any property with a business element will create a little nervousness with your lender.  Mainly because anything that goes wrong with the business will impact the value of the property.  The other consideration is that many serviced apartments include fitout and prescribed furniture packs, which banks typically don’t like to lend against.

These kind of investments tend to also seem appealing because they are usually offered with a short period of “guaranteed income”.  The devil is in the detail there because a short period is not a lot of help when you consider the length of the loan commitment at around 30 years.

 

3. “Cookie Cutter” apartment zones

Areas where many buildings contain a large number of near identical apartments represent higher risk for lenders.  It simply comes down to supply outweighing demand.  If there are too many apartments for the number of potential buyers then the lender will potentially struggle to recover their money in the event they need to.  From an investors perspective it will be more difficult to find someone to rent the property from you as well.  That said, it is still possible under the right circumstances to go ahead with a purchase in one of these area but always consult your broker before heading off to auction and putting down your deposit.

 

So the question you are likely asking yourself is “ok, but what if I think I can make a success out of one of these types of properties”?  Well, it’s not all bad news.  There is often a way to make one of these investments work through a mortgage broker rather than directly through a bank.  A broker is likely to have a wide network of potential lenders and is able to generate an environment where banks compete for your business rather than feeling the need to go cap in hand to the bank and beg for support.  Mortgage brokers have access to hundreds of lenders and thousands of loan products.  So if you are considering an investment into one of these types of properties then make contact with us and let us see what we can do to help.