Killara resident, Lyn asks
“I wish to purchase a small studio apartment as an investment property, but my bank said they wouldn’t finance a small property. Why and what are my options?“
Thanks for the question Lyn.
Sorry to hear you’ve been denied finance for the investment property. There are still some options available that we might be able to help you out with. Best to read over my advice below, then give us a call, and we’ll point you in the right direction.
Historically most lenders will have size restrictions on investment unit purchases. Generally, a minimum of 40 to 50 square metres internal size can be financed. If the property is smaller than 40 square metres, you will be required to have a 20% deposit and access to lenders open to financing smaller units become limited. In addition, anything less than 20% deposit means there’s mortgage insurance involved, and insurers do not look favourably upon small units due to the nature of the property.
Smaller units have limited marketability.
Should the lender have to foreclose on the property due to repayment defaults, the lenders’ risk is considered high due to the limited number of potential buyers looking for smaller units. This means less chance of the lender being able to recoup the debt.
There are studio apartments which means there’s no separate bedroom, floor plans are one-bathroom, open plan kitchenette and bedroom and are considered more difficult to finance. These types of units are commonly found in inner-city locations that may have trendy and popular art deco style buildings. Then there are one-bedroom apartments which are considered more desirable than studio apartments.
If you’re looking at a one bedroom or a studio apartment, you need to find out how many square metres it is before making an offer. Apartment pictures and information such as the floor plan and size can usually be found on real estate websites such as realestate.com.au. The minimum size of 40 to 50 square metres imposed by most lenders is usually internal space only and does not include the balcony or car space.
Looking to buy an investment property?
Mortgage World Australia has been helping people buy a wide variety of investment properties, including small studio apartments since 2001. Our team have access to a large collection of lenders who can usually accommodate finance for most borrowers needs.
Whether you are a first home buyer just starting out on your real estate journey, an experienced investor or you are just looking to get a better deal on your current home loan then give us a call. We look forward to hearing from you.