Before any investor makes this choice, they should ask themselves a few questions. How much do you want to invest? Do you want to make improvements that will increase the value of your investment? What are your desired financial outcomes?
Units are usually cheaper to buy, which makes them a more affordable investment for first time investors.
The comparatively low maintenance of units is also attractive to investors because there’s usually no garden and external maintenance is looked after by the Body Corporate. This makes units a better investment for investors who live interstate or don’t have the time or inclination to manage the day-to-day up-keep of their property.
Units are easier to rent, particularly if they’re in sought after urban centres or located near major transport hubs or near recreation areas. In addition, many new apartments can make the services and amenities of a mansion available to renters. They can enjoy million dollar views, or have access to facilities such as a gym, swimming pool and outdoor entertainment areas.
This usually means that the rent return to the investor is higher and in some inner suburbs the amount borrowed to buy the units can be positively geared, meaning that the monthly repayments are actually lower than the rent received.
In the higher demand areas, more tenants are after apartments than houses and so investors have greater power to increase rents, and units are likely to be vacant for shorter periods of time.
So why do some investors prefer houses? The main reason is that the potential for capital growth is greater. Houses are built on land, and each has some content of land attached to the title, unlike units. Land follows the principle of supply and demand, and where developed land is in short supply, good growth can be expected. With apartments however, a huge capacity still exists to build more, as low density homes can be knocked down and replaced with large unit blocks.
The investment risks are lower with houses, as the land content attached to homes also means that they are less risky and therefore better suited to the cautious investor.
The value of a house can also be improved, unlike units. With units there is only so much renovating an investor can do, such as putting in a new kitchen or bathroom, but houses offer much greater scope for improvement. In addition to internal refurbishment, a house can be extended outwards or upwards, creating more rooms and a better view. The land can also be improved, by landscaping the garden or putting in a pool. All of these add considerably to a house’s value.
What’s the verdict? Houses are usually less risky and provide better capital returns, but buying a house in most cases is considerably more expensive and therefore not always an option. Units are easier to maintain and to rent and provide higher rent returns.
If you decide to purchase a house, look for its renovation and land improvement potential before you purchase.
If you do decide to invest in a unit do some research and select an apartment for its attributes and location and look to areas that will not be undergoing further unit development in the future.
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