Are houses a better investment than units?

It’s not about which property type is the best, it’s about which one is the best for you.

Ask anyone and there will always be a huge argument about whether houses or units are better investments because a lot of people think that houses are superior to units and vice versa.

But to me, it’s not about which is the best dwelling type, it’s about which one is the right property for you.

In fact, both dwellings have a very important place in your portfolio as long as they are the right type of property.

Houses vs Units

Typically, with houses, you have the land component plus the ability to value-add internally and externally.

You also may have the upside of zoning advantages to allow you develop the site and construct additional dwellings. Houses generally also attract a different demographic such as families, too. However, more and more families are choosing units over houses because they are often in better locations.

What I mean is that with units and townhouses, they’re usually built on better infrastructure and are located on transport hubs and near shopping precincts already, so they can have better access to services.

Another advantage to units and townhouses is they traditionally have a better yield but you must ensure you’re investing in a property that has a low cost to operate such as low body corporate fees.

When it comes to units and townhouses, my preference is to invest in ones that are walk-up, which means no elevators or lifts, that aren’t located in large complexes. Plus, you must be an active member of the body corporate to play a part in its management.

A Question of Price

Some people still believe that if it’s a question of price, then perhaps they should invest in an affordable house in an outlying suburb rather than a unit or townhouse closer to the city.

But, again, that’s the wrong way to approach it.

That’s because it really still comes down to your own unique financial situation.

If you’re someone who doesn’t have a lot of disposable income then maybe a unit or townhouse might be a better scenario because of the possibility of better cash flow.

From a portfolio point of view, if you’re a multiple property owner, I believe it’s absolutely necessary that you have a mixture of both houses and units.

Having a mix will help you balance your books in terms of cash flow. It may also be advantageous, if you’re investing strongly in one particular State, to own units as it could help you from a land tax point of view.

No longer a poor cousin   

When I first start investing, I refused to buy a unit because I thought it was a waste of money and it wouldn’t grow in value.

But I didn’t realise that you have to think about strata as a kitty with continual contributions to take care of major repairs and expenses on the building.

Five years later, I felt like an idiot because that unit that I had turned down had increased in value significantly.

The thing is, today, a well-located and well-managed unit or townhouse can grow in value just as much as a house.

Years ago, units and townhouses were considered the poor cousin to houses but we are now in the midst of a societal and cultural shift that’s changing that perception.

Sydney is a really good example of that because it has been building more units than houses for decades.

Even when the market might temporarily slip into oversupply territory, it doesn’t take very long for that unit supply to be soaked up because of the strong demand from people to live in these types of dwellings.

And that demand is growing quickly in Melbourne and Brisbane, too.

But I don’t recommend that you invest in new units. Established properties are my preference – even dwellings that are quite old because they are larger and are generally better built.

So the takeaway from this age-old argument is that there is no definite answer to whether units or houses are the better investment. As long as you buy the right type of property, and have balance in your portfolio, either dwelling could be an ideal investment for you.

 

Original blog post by Steve Walker on The Real Estate Conversation on May 8, 2017 and found here.

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