Where to park your money Author: Kate Robertson Date: 01/09/2007 Publication: The Age Section: Domain Page: 4
Can't afford to invest in bricks and mortar? Kate Robertson offers alternatives.
WITH property prices booming, alternatives to traditional real estate are becoming viable: from car parks to strata-titled hotel rooms, self-storage units and marine berths. But do they stack up financially?
Marina manager Allan Cayzer, for one, thinks people would do well to dip their toe in the alternative real-estate market.
Mr Cayzer is bracing himself for a boom in marina berth investments. Manager for the marinas at Yarra Edge, Martha's Cove and Queenscliff, he has been watching the changing demographic of boat owners with interest and as more and more people begin to embrace boating in their late 40s and 50s, he is sure it will lead to an increased interest in berths as an investment.
Mr Cayzer says marine berths, sold on a long-term lease basis, are already a sound investment: for $140,000 you can buy a 14-metre berth at MarinaYE on the Yarra, near Crown Casino, and rent it for $11,500 a year.
"A marine berth is a lifestyle thing. Ninety per cent (of MarinaYE berths) are owner-occupied. It's also recognised by people that it's an investment; they might have one boat and buy three berths and rent two out. It's not unusual for them to be owned by superannuation funds. You will always sell it at a profit," he says.
Paradoxically, Mr Cayzer says, the price of a berth tends to rise as it nears the end of its lease term. "In most marinas at the end of the 20-year lease, the owner has first right of refusal to start again, and that's worth money if there aren't any more berths available, particularly in a yacht club situation."
But if you're more of a landlubber, for around the same amount of money you could buy your own hotel room. Real-estate agent Lucas Burton says four-star strata-titled hotel suites costing $150,000, with a 10-year lease, provide investors with a 7 per cent net return of $10,500 in the first year, with yearly CPI increases capped at 3 per cent.
"The great thing about this is because they get double the net return (of normal real estate), they pay themselves off twice as fast," Mr Burton says. "You don't have to maintain the property, you don't have to find the tenants. It's a very hassle-free investment."
Out of mind until the rent money drops into your account.
If a hotel suite doesn't appeal, you could consider a bare room, potentially as small as one by three metres with a roller door - a strata-titled self-storage unit, which can be bought for less than $22,000. Some have a rental guarantee of 8.5 per cent for up to two years.
The self-storage industry took off in Australia in the '90s but strata-titled units have only been sold in the past couple of years, with marketing promising "outstanding" returns, "affordable entry to the property market" and "excellent" depreciation and tax benefits.
Executive officer of the Self-Storage Association, Rennie Schafer, says much of the interest is coming from owner-occupiers; "they are tradesmen thinking it's cheaper to buy it and pay it off than rent it".
However, there is an increasing number of mum and dad investors and Mr Schafer urges caution. While the self-storage industry is profitable, running an entire complex as a business differs considerably from owning a single unit.
Mr Schafer says well-managed self-storage businesses have an 80-90 per cent occupancy rate, so it's essential to understand if the rental is collected on an individual unit basis or pooled. "Your unit could be vacant for six months," he says.
If you only have a lazy $18,000 to spare and you don't fancy parking it in a high-interest bank account, Francis Armstrong, founder of findacarpark.com.au, says he has just the spot for it. His website began in 2005 as a way for people to rent out their unused garage, car park or driveway, before expanding to allow people to sell car parks and "it's been going crazy ever since".
Mr Armstrong says you can buy a city car park for as little as $18,000. About 90 per cent of sales are to investors who then rent the space out. "They are taking 7 per cent clear after tax - and that's a good investment. The barrier to entry is low - it's not a house, it's easy to manage, it's just a block of land."
Most of the car parks are on a strata title with ongoing costs including body corporate fees and the CBD parking levy. Mr Armstrong says CBD car parks advertised for rent at $200-$300 a month are usually leased within 48 hours. "St Kilda Road is also pretty hot - if you list it for $250 a month it will be gone within the week. The only ones that sit are the ones in the suburbs and that are priced ridiculously.
"Ten years ago people wouldn't think of it (a car park) as an investment. Now people are thinking car parks are cheap to buy. You get some more sophisticated investors who have 20-30 car spaces but a lot of it is mums and dads because it's a small purchase that they can fund through equity in their home."
So, the alternatives are there. However, the question remains: is looking outside the square a financially savvy move?
Karin Mackay, director of Australian Property Buyers, is not so sure. While she has never bought a marine berth for a client, she has advised many would-be buyers about car parks, storage units and serviced accommodation: "It's generally people who want to get into real estate but don't have much money. They are generally young people. The age bracket would be 20 to 30."
But her advice is usually blunt: "Keep saving." Ms Mackay says lending institutions are often wary of such investments and operate on conservative lending ratios that can require large deposits of 50 per cent or more because of the perceived risks.
While storage units can have an initial rental guarantee, once that runs out the returns can be small and "it's difficult to on-sell", she says. "If you bought a storage unit for $15,000, depending on where you buy, it could take 10 years to double your money. They don't show capital growth. I'm very much into the thought that land appreciates and buildings depreciate."
Ms Mackay says her issue with strata-titled serviced apartments, hotels or student accommodation is that there are so many of them and, if they are managed under a group and that group goes under, there could be 100 apartments or studios coming onto the market at the same time.
"The banks see it as a huge risk. If you had $179,000 you would be better off buying a '60s or '70s apartment in Footscray, Yarraville or Seddon. You will get better growth, 95 per cent lend (from the bank) and it's more secure.
"If they only have $20,000, I'd rather they buy shares than real estate. I usually say 'go talk to a financial planner or accountant'.
"If you are doing it for wealth creation it has to be the capital growth (you look at), not the purchase price."
However, Ms Mackay doesn't rule out car parks, with one proviso: "I would only buy within five kilometres of the CBD or in a high-density population base like St Kilda or elsewhere, which has restricted parking."