Is it better to invest in a house or an apartment? Both options have pros and cons, which means the right choice will differ from person to person.
With that in mind, let’s analyse how houses and apartments fare in five main categories:
- Purchase price.
- Capital growth.
- Rental yield.
- Buyer and tenant appeal.
- Renovations potential.
1. Purchase price
Houses cost more than units, on average, and therefore have higher barriers to entry.
2. Capital growth
Houses tend to experience more long-term price growth than units. That’s because houses tend to have larger land-to-asset ratios, and it’s the land component of a property that appreciates in value (while the dwelling component depreciates).
3. Rental yield
Units tend to have higher yields than houses, because you’re able to invest less money to potentially acquire a similar amount of rental income. So unit owners tend to have stronger cashflow and therefore find it easier to make their mortgage repayments.
4. Buyer and tenant appeal
While apartment living is becoming increasingly popular, including among families, in many areas more people still prefer houses. As a result, there tends to be more buyer and tenant demand for houses, which means they have tended to experience more price and rental growth over the long-term.
5. Renovations potential
Renovating can be tricky when you own an apartment, because you need to get approval from the owners’ (body) corporation. House owners, though, don’t have that problem. Also, because houses are larger than units and are also standalone dwellings, they tend to have more scope for additions and improvements.
What else you should consider when buying an investment property
Choosing between a house and unit (or townhouse) is one of the key decisions you’ll need to make when buying an investment property. Other things to consider include:
- Strategy – settle on an investment strategy before you begin your property search, because a property that is suitable for one strategy will probably be unsuitable for another.
- Location – this is the biggest factor in determining long-term price and rental growth.
- Property – be wary of buying a property that has problems that would put off tenants or be expensive to fix, such as noise issues, structural flaws or pest infestations.
- Price – to paraphrase Warren Buffett, it’s often better to buy a wonderful property at a fair price than a fair property at a wonderful price
- Loan – it’s important to get a loan that’s tailored to your personal circumstances and goals.
Your broker can crunch the numbers for you, so you can make an informed decision about whether to proceed.
