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Houses versus. units - which is the better investment?

Once upon a time, the idea of investing in a unit instead of a house was unheard of. When you buy a house, you’re buying land which has more inherent value than air, right?


This idea is slowly being dispelled as lifestyles change, spurring investors across Australia’s capital cities to opt for units. House prices in capital cities have risen over the years, leading more buyers to compromise on land and the size of their homes in order to live close to the CBD, pushing up the demand and value of units.

While there’s no definitive answer regarding which is better, there are a number of factors you should consider before pursuing any investment strategy. Namely, your aversion to risk, what you can afford, property market conditions both current and historical and where you choose to buy.

Houses

One of the benefits of buying a house as an investment is that if you want to change things like the colour of your walls or undergo more extensive work like a major renovation, a house is generally much more flexible as you don’t have to abide by strata laws.

That being said, if you live in Australia’s metropolitan areas, you may find that the purchase price of a house is significantly more expensive than a unit with the same number of bedrooms in the same suburb. Of course, this is usually down to the cost of buying land and the fact that the value of land will generally appreciate over time.

Another benefit of buying a house is that some tenants will look for outdoor space, which means you may be able to attract a larger number of tenants. Conversely, tenants who prefer not to maintain a garden or lawn may steer clear of houses with a backyard.

Units

Location is often what matters most to tenants and if your aim is to generate rental income, you’ll need to seriously consider this when making your decision. One of the main benefits of buying a unit is that they are usually constructed close to city centres, public transport, amenities and entertainment. Indeed, many apartment complexes feature gyms and pools, facilities which are sure to attract tenants (and higher strata fees).

Unit dwelling values have been out-performing house values across the country. CoreLogic’s Hedonic Value Index showed that unit values outperformed house values over April, with unit values trending higher, up 1.9% compared to a 1.0% fall in house values.

There are a large number of newly constructed units on the market. Newer homes are often much easier to maintain which means you won’t have to spend as much on upkeep. Furthermore, you may not have to pay for garden and lawn upkeep – although, keep in mind you will probably have to pay strata. Another advantage of buying a newly constructed unit is that you may be able to benefit from tax concessions relating to depreciation.

Do your research

No matter what the investment, the key is to make an informed decision. Property is a significant investment so in order to avoid buying with your emotions, ensure you do as much of your own research as possible.

Your local mortgage broker can educate you on available grants and funding you may be eligible for and help you determine your borrowing power. When you’re ready to buy, your broker will compare a variety of home loan options to find one that suits your unique financial situation.


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