Often the biggest challenge in buying your first investment property is choosing the right property to invest in. With the booming house market and increase in overseas investment, it can be difficult to choose between an apartment and house. As with every financial decision you make, it is important to look for a solution that best suits you.
Here’s a snapshot of the current property market:
- In 2013, unit prices were growing 1.1 percentage point more annually than house prices over the past five years – or altogether 5.62 percentage points more with the effects of compounding
- While capital city unit prices grew by an annual average return of 2.9 per cent over five years to December 21, 2012, house prices grew by only 1.8 per cent
- The average annual price growth for Sydney houses over the past five years is 2.7 per cent and 3.6 per cent for units
- However, over the long term house prices had actually outperformed units
- Affordability is a key factor, particularly in a market like Sydney where the media house prices is about $165,000 more expensive than the median unit price
- The long-held argument for houses over units is the belief that “the value is in the land” – land appreciates and buildings depreciate
So which one is better? Well, there is no clear-cut answer.
There are many factors to weigh up, but your ultimate goal for investment is to get the best possible returns.
Here’s what you should be considering:
Initial cost
Units are typically more affordable than houses, so it’s easier for a first-time investor to raise the necessary capital. Houses often have a higher entry price point due to land value. With the the surge in Sydney prices, the median price of units in Sydney is now higher than the current median house price in Brisbane, Adelaide, Hobart and Canberra. Be aware, the property market is always changing so be sure to keep up with the trends.
Factor in maintenance costs
Houses tend to cost more to maintain than apartments, because owners are responsible for the cost of repairs inside and out.
Apartment owners are usually only responsible for repairs inside their property, and will probably pay an owners corporation fee to cover all other repairs and maintenance.
The upside of owning a house from an investor‘s perspective is that you can make improvements to your property without approval from another party, such as an owner’s corporation.
What do you want from your investment?
What sort of investor are you? Are you looking for regular long-term income, or do you plan to renovate and ‘flip’ the property as soon as you can?
A house generally offers higher capital growth, due to the land component of the property. There’s also more potential for negative gearing. Units, on the other hand, tend to offer higher rental yields so they are more favourable from a cashflow perspective. Their lower price point may allow you to build a diversified property portfolio more quickly.
Weight up the potential rental returns
Apartments traditionally provide a better rental yield than houses. According to figures from CoreLogic RP Data, the national rental yield in 2014 for houses in capital cities was 3.7%, compared with 4.5% for apartments.
Recently, rental yields for both houses an units have been falling, as rises in property values have outpaced rises in rent.
You’ll need to think about both the level of financial commitment you’re up for and the expected rental return in order to work out what type of property makes the most sense for you.
Rentability and ‘the quality factor’
Invest in the best quality property you can afford within your budget – regardless of whether it’s strata titled or standalone.
In regards to units, you need to pick quality developments in quality areas with a good agent, as this provides a desirable property to tenants.
To optimise your investment, look for places where rental demand is high, such as around universities, transport or lifestyle areas with easy access to schools, parks, cafes, shops or beaches.
There is no one-size-fits-all. Ultimately, the right investment choice for you will depend on your financial position, risk profile and investment strategy.
To get a risk assessment and further professional advice, please don’t hesitate to get in touch wit the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
