23 Feb Houses vs apartments – which is the better investment?
Houses vs apartments – which is the better investment?
It’s a debate that’s been raging amongst property investors for years – which is the better investment, a house or an apartment? Median price growth over the last ten years would suggest that houses offer a slightly better capital growth rate than apartments, but the difference is so slight that this would hardly sway your opinion on what to buy. So where do we go from here – what’s the better investment in today’s market?
Is the value really in the land?
Many people who swear by their strategy of only investing in houses reason that they do so because land is the most valuable part of the asset. But the truth is that land value is also an important consideration when purchasing an apartment.
In both cases, land value is largely determined by the location of the property. The closer to the city the property is located, the more likely the land value will increase over time. Land values in inner city areas tend to rise more consistently than those in outer or rural areas, so these are important considerations when you are trying to decide what to buy.
Houses have their own land and this can offer the option of future redevelopment and add to the potential resale value. But this isn’t true in every case. You need to consider the location of the house to see if the land will make a significant difference to the eventual sale price.
On the other hand, apartments in the right location will always be highly sought after. Inner city land is more frequently occupied by apartments than houses – and that’s often where the greatest growth potential in land lies. Whilst you do not own the land outright when you purchase an apartment, you do own a share of it, and this can potentially increase the value of an apartment more than for a house that is not so conveniently located.
Consider the costs of holding an investment property
When trying to decide between investing in a house or an apartment, other things to consider include the cost and hassle that goes with maintaining your investment. A house with land requires a lot more effort to maintain – you’ll constantly be mowing lawns and caring for the garden and this can prove to be quite expensive over time.
Apartments are considerably easier and cheaper to maintain in this respect. Any garden areas are usually common areas and as such are maintained by the body corporate. Whilst you do have the expense of body corporate fees, the body corporate is responsible for much of the maintenance that goes with owning an apartment and saves a considerable amount of money and inconvenience for investors.
In addition to a garden, a house often has higher maintenance costs all round. Unlike an apartment, you are solely responsible for all of the costs involved. You will need to maintain both the interior and exterior of the house, the roof, fences, garden, driveway and more. Whereas, with an apartment, most of your ongoing maintenance costs will be on the interior of the property.
Choose a property that will be popular when you rent or resell
Over the past ten years, national median house prices have increased by 81 per cent and national median apartment prices have increased by 72 per cent. But these figures probably don’t show you a very good picture. In every market, there have been cases where apartments have clearly outperformed houses and vice versa.
There will always be demand for both houses and apartments. Some people, particularly families, will prefer a house. Others will prefer to live in an apartment. The trick to successful property investment is to do extensive research to assess each opportunity on its individual merits.
Smart investors look for two key financial drivers when selecting an investment opportunity – rental returns and capital growth. Choosing a property in the right location can be an important factor in providing both these elements of a good investment, whether it’s a house or an apartment.
Locations close to the city, business districts, employment centres, education facilities, entertainment and transport are always highly sought after. This makes them easy to rent and easy to sell. Apartments in these areas often provide a more affordable entry point and could offer a better investment opportunity than a house of the same price in a much less desirable location. The most important thing is doing your research to determine which investment option will give you the best returns.
Whether you’re planning to invest in a house or an apartment, we’re here to help you with the financial considerations involved and help to ensure that you’re making a good financial decision. We’ll also help you structure your finances and get the right loan for your personal circumstances and financial goals. So don’t procrastinate another minute, if you’re considering making a property investment in 2015, give us a call!