Before you choose what type of property you want to invest in, it’s important to ask yourself what you want from the investment. In particular – what sort of investor are you? The answer generally comes down to whether you are a capital gains investor or an income investor.
Do you want a long-term, regular income? Or do you plan to renovate and sell the property as soon as you can? If you’re an income investor, then you’ll be looking for properties that yield the highest rental return, whereas if you’re a capital growth investor, you’ll be looking for a property that is most likely to hold and increase its value over time.
Generally speaking, a house will offer higher capital growth due to the land component. There’s also more potential for negative gearing if you purchase a house. Units tend to offer higher rental yields and are therefore more favourable from a cash flow perspective.
There are a number of different things to weigh up before you make your ultimate choice, including:
- Initial Cost
Units are generally more affordable than houses, so for first-time investors, it’s quite a lot easier to raise the necessary money for the deposit in a shorter amount of time. Additionally, if you’re looking to build your investment portfolio, the lower price point of units will allow you to build a diversified portfolio much quicker.
Houses, on the other hand, are more expensive, mainly due to the value of the land.
If you’re opting for a house, you want to look for a property with a minimum rental yield of 4% and minimum two-thirds of the total value of the property to be in the land (ideally three-quarters). The building is a depreciating asset. Well located houses historically provide a greater opportunity for capital growth,
- Ongoing Costs
When you purchase a house you need to take into consideration things such as council rates and land taxes. For an apartment, you’ll have to account for strata fees and levies which may be increased over time.
- Maintenance
Maintenance of a house is your responsibility and therefore your direct cost. For an apartment, maintenance of the apartment building and surrounds falls to the owner’s corporation or body corporate to manage.
There are also additional costs for maintenance of a house due to the land – things such as landscaping, yard maintenance, housing exterior and more.
- Rentability
To make the most out of your investment it’s important you purchase in areas where rental demand is high. For guidance, places that usually have the highest demand are often those in close proximity to universities, transport, schools and lifestyle features such as parks, cafes, shops and beaches.
Apartments that are usually in high demand are those on the ground floor with a personal courtyard or upper-levels with excellent views.
So there you have it! While there are plenty of pros and cons for each option, the main thing you need to assess before making the choice is which property type will yield the best possible returns for you. Remember, the answer is going to be different for everyone!
Have any questions? Feel free to leave them below!
Until next time,
Sasha
