Considering buying an investment property? You may be wondering whether a house or an apartment is the better choice.
Each has its own pros and cons that are worth thinking about. The decision will ultimately come down to your personal preference, investment strategy, and financial situation.
Is buying a house a good investment?
Buying a house (and the land it sits on) is often an intriguing prospect for would-be investors for a variety of reasons, but it’s not without its drawbacks.
Pros of investing in a house
1. Higher capital growth
Houses and their associated land generally offer better long-term price growth than apartments, as land value tends to increase over time, especially in sought-after suburbs.
2. Opportunities to renovate and subdivide
As a homeowner, you’ll have the luxury of being able to renovate your property and improve its value without the need of approval from a body corporate (an entity that is made up of other owners in an apartment block). Subdivision may also be an option worth exploring (pending council approval), as it allows landowners to divide their property, often with the aim of building another dwelling (or multiple) on the divided land.
3. Consistent rental returns
Houses may attract families and professional couples, who are often looking to stay in a certain suburb for a longer period of time due to schooling or work opportunities.
Cons of investing in a house
1. Price
A house is generally more expensive than an apartment in the same area. The large initial outlay for a house can sometimes be a deterrent for investors.
2. Lower rental yield
The rental yield is the amount you make by renting out an investment property, compared to its purchase price, expressed as a percentage. It’s a metric that can help calculate your return on investment.
Generally, houses have lower rental yields than apartments and units, due to higher purchase prices.
3. Maintenance costs and upkeep
If your house requires maintenance, you will have to foot the bill. If the structure of the home is damaged in an insured event, then your home insurance may cover some or all of the costs, but you’ll be responsible for paying insurance premiums. Home insurance is usually required if you have a mortgage but, even if you’re mortgage-free, it’s generally strongly advisable to have insurance. While apartment owners must maintain and repair the inside of their property, maintaining exterior areas and building insurance is normally the responsibility of the body corporate.
Is buying an apartment a good investment?
Apartments and units are often more affordable than houses. However, there are other factors to consider before buying an apartment.
Pros of investing in an apartment
1. Affordability
Apartments can offer an affordable entry point into the property investment market, especially in sought-after areas where house prices may be significantly higher.
2. Higher rental yields
Rental yields on apartments can often be higher than those on houses, due to the lower entry point.
3. Shared maintenance and upkeep
Apartment and unit owners often share their cost of building insurance, external maintenance, and general upkeep with the other owners within the block in the form of a strata title. The body corporate (also referred to as an owners corporation) manages and maintains the common areas in these situations.
The money used comes from annual fees (body corporate fees) and other special fees (also known as special levies) paid by the apartment or unit owners.
4. Potential for multiple assets
Since you’re unlikely to spend as much on an apartment as you would on a house, you could find yourself with extra money that could be invested in other ways. You may even be able to afford an additional apartment, which could provide you with more rental income.
Cons of investing in an apartment
1. Lower land value
Apartment owners generally don’t hold the land below their buildings (though, they typically own a portion relevant to the number of owners in a complex).
2. Strata and special levies
Ongoing body corporate fees can add up over time, while unexpected special levies can cause havoc on an investor’s budget.
3. Lack of control
Since most apartments and units are strata title properties, you may be unable to renovate without body corporate permission.
4. Future developments
In sought-after areas, more apartments and units will often be built to supply the rental demands. In the event that the area becomes oversupplied, you could potentially suffer from lower rental yield, demand and price growth.
Should I invest in a house or an apartment?
Ultimately, whether you should invest in an apartment or a house will depend on your investment strategy, the demand for and supply of certain property types at the time of purchase, the locations you’re looking at and what you can afford.
It’s important to do your research and consider speaking to people with relevant experience, such as real estate agents, accountants and seasoned property investors, before you make a purchase.
