Units versus houses: Which is the better investment?

Deciding if a house or a unit makes a better investment is determined by several factors. Each circumstance is unique to the investor, and it’s important to do thorough research before deciding which way to invest. Understanding the marketplace, your long-term strategy and budget will all contribute to the purchasing decision.

Focus on the market

Investment purchases should not be an emotional process. It can be easy to become sidetracked by that pretty little house on that perfect tree-lined street, and while that may turnout to be a worthwhile investment, it equally may not. It’s important to focus on the market first and foremost. Similarly to investing in banking or medical stocks, an investor should treat a property purchase as a rational financial decision.

The top three market factors

While you deep dive into data, there are three considerations to investigate before you decide whether to invest in a unit or a house.

  1. Economics: analysing key economic drivers in various markets will help narrow your consideration set when purchasing your property. Looking at what is happening in the market now, compared to what is likely to happen in the future, as well as demographics, employment rates and potential population growth are all strong factors that determine a desirable investment environment.
  2. Supply and demand: review the current statistics of your chosen market including the number of available houses and units now, and potentially in the future. Ideally you’ll be able to identify if there is an oversupply or undersupply of property in the market before choosing a location.
  3. Affordability: understanding the average property price in the area, compared to the overall state or city will help identify the affordability in the area. It’s important not to over or under capitalise when purchasing property.

Units and apartments

Units and apartments can be a great investment for many reasons, including the fact that they are in most cases a cheaper option than buying a house. Often they can be located in highly sought after inner city or popular suburbs, which will attract quality tenants. Units and apartments are also a smart way for investors to diversify their existing portfolio.

Another benefit of investing in an apartment is entering into a strata scheme, which assists with building maintenance and upkeep. If you were to own a house, all maintenance issues are your responsibility solely.

Looking at the amenities offered in the block is important to predict ongoing costs as part of your fees including pools, gyms, parking, gardens and shared living areas. These features, although helpful when attracting tenants and future buyers, can be costly to maintain.

Houses

With a house comes a higher level of privacy, more scope to build, renovate and potentially add value over time. Houses can be gutted, rebuilt and reconstructed without the need to run it by body corporate or strata.

However, purchasing a house will require you to pay 100 percent of insurances, maintenance, repairs and building damage. It is therefore worth considering inspecting the condition of the plumbing, electricals and roofing to see if any of these big features will need replacing any time soon.

The biggest advantage of purchasing a house is the ownership of the land it’s built on. The value of land will appreciate over time, and makes for a very worthwhile long-term financial investment.

If you’re interested in building a property portfolio, or keen to understand more about your options, contact CPS Property today.

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