As you scroll through real estate possibilities and see that gorgeous penthouse with floor-to-ceiling windows and a view of the entire city, you can easily feel a certain degree of temptation. However, when you look at the price, the truth dawns on you. Melbourne penthouses sell at significantly higher prices than normal apartments in the same building, and this can add hundreds of thousands to your investment. The big question then is: are these sky-high properties worth the additional outlay, or are you simply paying to brag? It is time to unravel the mystery behind penthouse investments and why they should—or shouldn't—be part of your property portfolio.

The Value of the Premium Price Tag

To begin with, it makes sense to discuss why penthouses are so much more expensive. You are not paying a little more just to have an extra bedroom or two. Penthouse apartments normally take over the whole top floor and have unhindered views, more space on the floor plan, taller ceilings, and in several cases, their own outside terrace that standard apartments just cannot offer. Most feature premium finishes, designer kitchens, and exclusive features such as personal access lifts. In the competitive Melbourne property market, these features translate to serious dollars. A penthouse may be 30–50 percent more expensive than a similar apartment a few floors down. In other cases, the premium can be even higher in high-end buildings in the vicinity of Southbank, Docklands, or the CBD. It is not a matter of whether penthouses are costly. They absolutely are. The real issue is whether or not such a premium provides returns worth the investment.

Rental Income Potential

This is where the interest of investors comes in. In case you want to lease your property, penthouse accommodation will attract a very particular type of tenant. These are corporate leaders, visiting executives, and wealthy professionals who are conscious of luxury and are prepared to spend top dollar to get it. Penthouses are especially well-received in the short-term rental market. When guests reserve luxury accommodation for special events, conferences, or long business stays, they will gladly accept higher per-night charges for that “wow” factor. Your penthouse could attract a premium of 40–60 percent in rental income compared to other apartments in the same complex. However, there is a catch. Your tenant pool is smaller. Where a typical two-bedroom apartment may be rented in a few weeks, a penthouse may take months to find the desired tenant. You must consider the possible vacancy and holding costs associated with this.

Keeping Capital Growth in Mind

Penthouses have not always performed positively in terms of capital appreciation. They are able to outcompete ordinary apartments in vigorous property markets since high-net-worth buyers will fight over scarce high-end property. During the boom period of the Melbourne property market, penthouses tend to gain higher percentage returns. However, luxury properties may be affected even more in bad times. A smaller number of buyers translates to fewer potential customers when you are about to sell. You may find it hard to move your property, and you may have to lower the price significantly to secure a buyer. Penthouses in good locations that have actual scarcity value are the sweet spot. A penthouse in a historic building with heritage can add more value than a penthouse in a generic high-rise where similar properties saturate the market.

Prestige Factor and Lifestyle

Honestly speaking, there is something emotional about penthouse ownership—something that goes beyond mere numeric figures. The lifestyle benefits are high if you intend to occupy the property yourself, regardless of whether you are there on a part-time or full-time basis. You are staying in the best apartment in the building, enjoying privacy, space, and views that make coming home truly worth it. This applies to business owners and professionals as well, where the prestige factor is involved. Entertaining a client or a colleague in a penthouse sends a clear message regarding success and a commitment to quality. The value of that premium, then, is in the extent to which you make use of these intangibles. Other investors believe that the ego of ownership and the option for personal use are worth the additional price, despite the fact that the pure financial returns may be only slightly higher than traditional apartments.

Financing Your Investment

A practical point that is not usually considered is how you are going to finance this purchase. Penthouses require large deposits and loan balances, so your borrowing power will be of great importance. Consulting a Melbourne home loans broker specialist here can make the difference to your investment strategy. It is possible to determine how to organize your finance to realize tax benefits and cash flow with the help of brokers who are familiar with the luxury property market. They could indicate interest-only lending to lower holding costs during the rental stage, or assist you in gaining access to lender policies that favor high-value properties. Penthouses are considered riskier by some lenders as they are in a niche market, and having a professional to navigate these waters can save you from expensive errors or lost opportunities. The way you finance could eventually make or break your penthouse investment—either giving you good returns or turning it into a cash drain.

The Verdict

The question is, therefore: is a penthouse in Melbourne worth the premium? The candid truth is that it depends upon your particular circumstances and investment objectives. Investing in a penthouse is rational when you can check many of the following boxes:

• Your cash reserves are high enough to withstand vacancy periods.
• You are investing in a rare piece of property that is truly unique, not just any top-floor unit labeled as a “penthouse.”
• You are able to obtain competitive financing without straining your budget.
• You appreciate the lifestyle advantages or intend to put the property to personal use.
• When you are ready to sell, you are comfortable with a possibly smaller base of buyers. Penthouses may not suit your requirements if you want regular and strong rental revenue with low turnover, if you are pushing your budget to its extreme, or if you are making a capital investment in a vague market. Avoid purchasing in a flooded neighborhood where one can easily find penthouses of the same kind.

Making Your Decision

It is all about being honest with the numbers. Calculate the anticipated rental yield by taking into consideration actual occupancy rates. Include increased strata charges and insurance premiums, which in most cases are part of owning a penthouse. These returns must be compared with what you would get from a normal apartment and the cash savings of a lower purchase price. Visit the property during various hours of the day to ensure the views are truly special and cannot be easily replicated by other apartments. Check out recent sales of similar penthouses in the area to understand the actual market value, not just the asking price. Above all, consider your five-year plan. Are you able to hold the property through the ups and downs of the market? Is it the right choice based on your overall investment plan, or is your purchase decision based on your heart rather than your brain?