Should I buy a house or unit?
This is always a question that comes up for first-time property investors. What are the pros and cons of buying a unit vs a house?
Perhaps you found a new suburb with plenty of potentials, with a series of units or townhouses ripe for the taking. Maybe there has been a population boom in that area, and you are looking to take advantage of the demand for rent. Or perhaps you think that your only option is investing in a unit due to financial limitations.
The short and sharp answer to this question is that, on average, it is best to invest in a detached dwelling, i.e. housing.
This is because apartments, units, and townhouses don’t see as much capital growth as housing and blocks of land. Remember, making a decision based on data is critical. By looking at attached dwellings like units and apartments, you are missing out on scarcity.
A developer can build multiple units atop one another, creating a supply that adequately meets the demand. As a result, a unit will not have that scarcity factor. Remember, supply remains the enemy of growth, and if supply keeps up with population growth, capital growth or prices do not increase.
It is best to find a house where data suggests that demand is higher than supply, creating scarcity.
Investing in apartments equals a low land to asset ratio, meaning apartments and units generally have a much lower proportion of associated land. This can often result in lower capital growth when compared to housing investments.
There are also corporate fees and sinking levies to consider when investing in a unit, especially in complexes with attractive facilities such as a pool, gym, etc.
Of course, there are exceptions to the rule, and the unit vs house difference is not always as clear cut. There are specific properties, often found in Sydney and Melbourne, similar to a traditional ‘flat’ built in the 70s or 80s.
They usually have a straightforward layout, all ground level, maybe a few sets of stairs and no lifts, with no gym, pools, saunas, etc., that demand body corporate fees and sinking levies. These ‘flats’ can be good investment options, as the land to asset ratio is high.
When considering the pros and cons of buying a house, investing in a house is generally a more expensive option and can significantly deter people with limited financial resources. If this is you, don’t despair at what has been said so far. Investing in a house is still not out of the question.
It may just be a matter of looking outside your backyard and considering all the suburbs available. Apply a wider lens and look at the more cost-effective alternatives situated in high growth suburbs.
Picking a high growth suburb is a science, and learning that science is key in reaping the benefits of property investment.
Want help in mastering the strategies and skills needed to pick these high growth suburbs? Have any further questions about the dilemma of buying units vs houses? Get in touch!