A question we’ve probably all asked ourselves at some point is whether a house or a unit would be the best investment choice for residential real estate. It’s a fair question too, because limiting our options to either one or the other can make it more difficult to invest, particularly in a rising market.
Firstly, let’s look at the advantages of buying a unit as a residential real estate investment:
- Affordability. The main driver for investors buying units. Median unit prices are noticeably lower than median house prices in every capital city in Australia.
- Lower maintenance. Units are arguably easier and cheaper to maintain than houses. That’s why they are increasingly the residential real estate preference of many retirees and ‘downsizers’.
- Rental yield. Due to the lower purchase price, a higher gross rental yield is common with units and apartments compared to houses. (Tip: to calculate the gross rental yield percentage, simply divide the annual rental income by the purchase price, then multiply this amount by 100.)
- Location. There is a trend for town planners to move their focus towards increased density in established areas, close to existing infrastructure and employment.
It is worth noting though, that a unit with some scarcity factor, or other point of difference, would usually make a better residential real estate investment than a unit in a high-density tower.
For example, a character or art-deco style apartment in a low density, well located block would be preferable to a unit in a newer block with hundreds of identical apartments and expensive strata levies.
Now, what are some advantages of a house for your choice of residential real estate investment?
- Generally, capital growth can be higher with houses compared to units, due to scarcity of land, and units sharing a piece of land. The land component may even allow for sub-division or a second dwelling, which can greatly increase your profits.
- Family friendly. You can often attract a wider tenant pool if you are renting out a house.
- You can pay for maintenance as it happens, rather than the compulsory (and often high) quarterly costs of unit strata schemes.
- Control of renovations. Internal changes (even structural) on houses can be done without approval from strata. With council approval you can do major additional improvements and even change the street appeal of a house.
At Adviseable we often get asked, should I buy a house or a unit? Actually, the question of where to buy should really come before what to buy, as the market that you decide on will determine how much capital growth you will enjoy in the future.
So, before deciding on a unit or a house, the focus should always be on economic factors and demographic trends in deciding which area you’re looking to invest in.
This way you’re not only more likely to invest in the right market, but you’ll also purchase the type of property that most tenants want in that area.
Regardless of whether it’s a house or a unit, capital growth will always be determined by market conditions. While it’s impossible to predict accurately the capital growth rates, there are some indicators that we feel you should pay attention to, so that you have the best possible chance of securing a great investment.
Here are some useful links that include more information on each indicator:
Ultimately, there is no good or bad, right or wrong decision in whether a house or a unit is your choice of residential real estate.
Ultimately, it needs to be looked at on a case by case basis, to help you get the very best outcome for your particular set of circumstances. This is why we are here.