Frank Valentic | 20 November 2012

Is a house or an apartment a better investment?: Frank Valentic

Is a house or an apartment a better investment?: Frank Valentic

Buying a property is one of the biggest investment decisions you will ever make, so it’s important you get it right. Firstly, you must consider what you can afford. Once you have a budget in mind, you can assess your options and decide on which investment type will best suit your individual requirements – an apartment or a house? With the right knowledge and information at your disposal, you can more easily determine which type of property will give you greater capital growth and rental returns.

We are often asked whether a house or a unit/apartment will provide a better overall investment, especially in terms of wealth creation or early retirement goals. Our response to that is historically, houses have always outperformed units in terms of capital growth.

The old investment adage of “land appreciates, buildings depreciate” has held true. However, times are changing, and we’re now starting to see good capital growth levels with apartments.

Consider the following list of pros and cons for both property types to help make your purchase decision easier.

Pros of buying an apartment/unit

• Lower entry-level purchase prices

There are many good-quality apartments around, for half the cost you would pay for a house. Getting started and saving for a deposit is more achievable and means you can own a property sooner rather than later.

• Low-maintenance living

Fixing, repairing and general upkeep of a property can be a lot of hard work, especially if you are short on time and money. Apartments generally require less care and maintenance than a house, which makes it ideal for socially active professionals or baby boomers looking to downsize.

• Less expensive to renovate

Polishing up an apartment with a coat of paint, changing door handles and installing new appliances can really help to sharpen the appeal of an apartment. This can often be achieved at minimal cost, saving you lots of money when compared to renovating a larger home.

• Higher rental returns

Apartments usually generate a stronger rental yield than a house. The increased demand for apartment rentals will ensure good investor returns over the long term.

Cons to buying an apartment/unit

• High body corporate fees

Depending on the type of apartment you buy, the body corporate fees can sometimes be excessively high. Quarterly payments will often go towards maintaining shared facilities such as laundry, lifts, gymnasium, pool and outdoor entertainment areas.

• High-density living

Not everyone will share the same ideals or standards as your own; some apartments have thin walls and poor insulation, which can mean high noise levels and a general lack of privacy. In many ways, you are powerless to change your environment.

• Buying off the plan

Modern apartments in high-density developments can often attract very slow capital growth. Resale is usually not that strong, with the land value worth less than 10% of the purchase price.

• Smaller living spaces

If you are accustomed to more expansive living arrangements, this may present a problem. Some apartments can lack key storage space and can be difficult to navigate in freely.

 

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