Should I invest in a unit or a house?
The first tenet of investment is to get the best possible returns, so let’s look at where the money comes and goes when you’re investing in residential real estate.
Initial cost
Units are typically more affordable than houses, so it’s easier for a first-time investor to raise the necessary capital. Houses often have a higher entry pricepoint due to land value. According to the latest Domain Group House Prices Report, the national median house price is $636,315 while units are $476,023. With the surge in Sydney prices, the median price of units in Sydney is now higher than the current median house price in Brisbane, Adelaide, Hobart and Canberra.
Ongoing expenses
Council rates are usually higher on a house and you’ll be required to pay land taxes on an ongoing basis. With a unit or apartment, you will have to account for strata fees quarterly for the life of the investment, including any special levies that may be raised.
Maintenance
If you own a house, all maintenance issues are your responsibility (unless you have a property manager), whereas the maintenance and care of an apartment building and surrounds is the responsibility of the body corporate.
What do you want from your investment?
What sort of investor are you? Are you looking for regular long-term income, or do you plan to renovate and ‘flip’ the property as soon as you can?
A house generally offers higher capital growth, due to the land component of the property. There’s also more potential for negative gearing. Units, on the other hand, tend to offer higher rental yields so they are more favourable from a cashflow perspective. Their lower pricepoint may allow you to build a diversified property portfolio more quickly.
Older units in smaller blocks might offer better value than swanky new apartments in skyscrapers. You’re less likely to pay ongoing levies for amenities such as gyms, concierges and heated swimming pools; your voice will be louder in owners’ corporation meetings. It’s also easier to find new tenants if there aren’t 20 other vacant properties in the same location.
Rentability
Both houses and units are in demand right now. To optimise your investment, look for places where rental demand is high, such as around universities, transport or lifestyle areas with easy access to schools, parks, cafes, shops or beaches.
Ultimately, there are reasons for and against almost any dwelling type. The right investment choice for you will depend on your financial position, risk profile and investment strategy.
First appeared on Domain.com.au. Republished with permission.
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