Investing – house or apartment?

Once you’ve decided property investment is right for you, it’s then time to decide what type of property matches your needs.

One of the biggest considerations is whether to choose a house or an apartment. And this isn’t simply a question about the up-front cost.

In fact, there are several key factors to consider:

Are you looking for capital growth or rental yield?

If you look at things with a historical perspective, a house will typically provide greater rewards in terms of capital growth, and an apartment will provide greater rental yield.

Some investors believe that the value of property lies in its land, which appreciates in value, rather than the building itself, which depreciates. So potentially the more land you have, the greater your appreciation.

If you’re serious about buying in a particular suburb, it may be worth speaking to a local real estate agent or buyers agent, who can advise on likely rental returns – and occupancy rates for both houses and apartments in your price range.

How do you feel about dealing with a body corporate?

While a body corporate has plenty of fantastic benefits for apartment owners, it can also be quite a daunting concept. ‘Decision by committee’ means you have less control over your investment than if you were a home owner, as you suddenly have to consider the needs of other apartment owners too.

It’s also worth considering that body corporate fees range from several hundred to several thousand dollars per year. This is separate to any special levies which may be imposed in the event major building care projects are required.

How much time do you have on your hands?

Generally, homes are larger and will call for more ongoing maintenance than an apartment. The larger and older your home, the more maintenance is required. While a rolling green lawn looks fabulous in real estate advertisements, it also needs a lot more maintenance (generally speaking) than the entry foyer of an apartment. This potential for expense is certainly something that’s worth factoring into your overall decision.

When you own an apartment, most of the maintenance is taken care of by the body corporate, which can save you considerable time and hassle (though not necessarily expense).

How much money do you want to spend?

Generally speaking, houses cost more than apartments. However, this is not always the case. And it’s not simply the purchase price that you need to consider.

Keep in mind the following:

• With an apartment, you are also required to pay body corporate or strata fees. Whilst in relation to houses, you will generally be responsible for council rates, water rates, etc.
• Apartment owners generally don’t have to pay land tax (or if they do, it’s usually quite small). If you own a house, the more land you own, the more land tax you pay.
• With a house, there’s potentially more opportunity to add value down the track by renovating or sub-dividing.
• Rental demand is typically higher in the apartment space than in the home space.

Do you plan to renovate?

With a house, there’s a lot more scope to renovate or even extend your investment in order to add value. You can also refresh both the interior and the exterior. While you can certainly renovate the interior of an apartment, you’re quite limited what you can do in terms of structure or exteriors, unless the body corporate agrees a change could be beneficial.

Where are you looking to buy?

Generally speaking, thanks to our increasingly urban population, the closer you buy towards a city, the higher demand you’ll have for your property.

And the closer towards the city you search, you will find more apartments than houses.

For this reason, if you’re looking for a solid rental return, you’re generally more likely to get it if you focus your attention on the city or its immediate surrounds. The bigger the house, the further out you (generally) have to buy. So while this may mean a potential for greater capital growth, it may also mean a trade off in possible rental yield.

Which option is right for you?

The investment property that you decide to buy is a very personal one – and it’s important to have the right advice. You should always seek advice from an independent expert who specialises in providing investment property advice.

A Yellow Brick Road adviser can help you understand your available financing options, and decide which financing strategy best suits your needs.

Contact us today on 1800 927 927.