Building an investment property: house vs apartment vs townhouse

Building your own investment property from scratch allows you to tailor the property to your target market right from the start. Of course, there are many things you should consider before you start construction, but chief among them is the type of property to build to potentially maximise your return on investment. 

The investment property type that you choose to build affects everything, such as construction costs, financing, upkeep and maintenance, property management, and potential rental yield. 

In this article, we explore the pros and cons of building a house, townhouse, or apartment as an investment property: 

Building a house 

Investors could have a lot more freedom when it comes to building a house rather than an apartment or townhouse. It’s also much simpler to build a free-standing property compared to one that is attached to other units.  

If you’re looking for a more streamlined house construction experience, you could opt for a turnkey house and land package. A turnkey house and land package can be the most attractive option for investors who don't want to get bogged down in all the little details. It means the house is finished for the investor and the tenant - all you need to do is turn the key and move in. 

Turnkey house and land packages often include all the little things normally not included in newly-built homes like the driveway, landscaping, fencing, letterbox, and the like.  

House and land packages are usually sold off the plan, with a range of customisable designs to choose from. These packages usually come with a fixed price contract, so there aren't any surprises.  

Investors could also purchase a vacant block of land or knock down an existing property and build a new one. A big benefit of this is that you get to choose the builder and architect. 

Pros of building a house as an investment property 

• Generally better opportunity for capital growth compared to an apartment unit 
• Typically attracts long-term renters for more consistent cash flow 
• Could garner better returns if sold later on 

Cons of building a house as an investment property 

• More expensive construction costs than an apartment unit 
• More responsibilities as a landlord 
• Usually higher taxes and ongoing fees 

Building a townhouse 

A townhouse is a residential building with attached, multi-story properties that share land. Building townhouses may be cheaper than a free-standing house because each unit is typically smaller. However, construction costs vary per build and the specifications of the property.  

For those who want to rent out multiple units, a townhouse is typically cheaper than building two separate houses, as the dwellings will be on the same block of land. 

Townhouse properties have the potential for significant profits because you could potentially get multiple rental incomes from the asset. Choosing the right area to build your townhouse mayt impact the profitability of your investment. Town planners can guide you on what type of developments are allowed to be built in that area.  

Pros of building a townhouse as an investment property 

• Typically less expensive to build 
• Potential for higher rental income with multiple units 
• Can attract both long-term and short-term renters 

Cons of building a townhouse as an investment property 

• Maintenance and upkeep of a townhouse is more complicated 
• More tenants to manage 

Building an apartment unit 

Unless you're a property developer, it's unlikely the average property investor will be able to build an apartment complex— but you can buy an existing one and customise it. If you’re buying a unit from a project that’s still in development, you may have a choice of floor plans from the developer, similar to a turnkey house package. 

You could also renovate an existing unit to modernise it or include value-adding features that could attract tenants or get higher rent prices. 

Pros of building an apartment unit 

• Typically cheaper than building a house or townhouse from the ground up 
• Less maintenance costs and fewer landlord responsibilities 

Cons of building an apartment unit 

• Restrictions on what you can do with the unit 
• Rental income could be lower compared to a house or townhouse 

Is it better to invest in a house, apartment or townhouse? 

It all comes down to your overall investment strategy and goals. When you're considering a property purely for its investment potential, rental income and capital growth are the two key things to keep in mind. 

Generally, houses tend to generate better long-term capital growth (because of the land) while apartments and townhouses/duplexes generate better rental returns. However, a lot of this depends on what's happening with the property market and the economy.  

If you're ready to start building your investment property, check out your construction loan options. Our investor construction loan offers a competitive interest rate that converts to our market-leading offset variable loan once the construction of your home is completed.  

Learn more by speaking with our friendly lending specialists at 13 10 90 or get a head start by completing an online loan application! 

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