Apartment vs house: which is a better investment?
If you plan to invest in real estate you will need to choose what type of property to buy, and this generally comes down to a choice between a free-standing home or an apartment.
When buying an investment property in Australia, you have a choice of property types, with the most common being apartments and houses. Both can offer advantages and disadvantages depending on your investment goals. To maximise your property investment, you need to understand the pros and cons of an apartment versus a house. Here are some factors you need to consider:
Property sale price
One of the most significant differences between an apartment and a house is the purchase price. Generally, apartments start at a much lower price point than houses. This makes apartments much more affordable and accessible to potential investors.
On the other hand, since houses typically have a higher sale price than apartments, it could net investors better profit if they decide to sell the investment property.
Regardless of property type, you can still use an investment home loan to purchase the property. Calculate potential loan costs by using an online home loan repayment calculator. To learn more about your investment property finance options, get in touch with our friendly lending specialists by arranging a call. You can also start your online loan application today!
Why choose an apartment?
Apartments are usually more affordable they are than houses, making them a good entry point into the market if you're a first-time investor or just have a smaller budget. If you're trying to buy close to the city, apartments are generally a more affordable option than a house in the same suburb.
Why choose a house?
Houses may be more expensive, but they can also offer better returns as they can garner higher rent prices. If you plan to sell the house or flip the property, you may get a better deal out of it.
Capital growth
Capital growth refers to the increase in a property’s value over time. This is one of the ways investors build wealth, so it’s important to consider when buying an investment property.
If your property has increased in value, selling it may result in a capital gain (a profit). However, capital gains tax may apply.
Why choose an apartment?
Often, apartments have lower capital growth potential compared to houses because of the lower land value. However, apartments still generally appreciate in value over time. Buying an apartment near community amenities, public transportation, and business centres could increase its potential for capital growth.
Why choose a house?
Generally speaking, houses usually offer greater long-term capital growth than apartments because land appreciates in value over time. But there are some exceptions to this rule: a block of land out in the middle of Alice Springs is unlikely to rise in value over time compared with the square footage of a one-bedroom apartment in Bondi. This is why it's also important to consider the location when choosing an investment property.
Rental yield potential
Rental yield is the profit you make every year from your investment property as a percentage of its value. Having a high rental yield usually equates to better cash flow. Although rental yields aren’t the only indicator of a good investment property, it’s worth taking into account when choosing an investment property.
Rental yield potential varies depending on the location. In some suburbs, rental yield for units outperforms houses, while in others it’s the opposite. It could be a good idea to research the top rental yield suburbs in a particular area before deciding on a property.
Why choose an apartment?
An apartment is typically a less expensive investment option, and in some locations, may offer higher rental yields. If you choose an apartment that’s in a desirable suburb like the CBD or near holiday destinations, you may see higher demand, which in turn could lead to higher rent prices and rental yield percentages.
Why choose a house?
Because houses are generally more expensive, the rent prices are usually higher as well. If your investment property is near schools or community amenities, it may also garner higher rental yields. Houses tend to attract more long-term tenants, as well, which could mean more reliable and consistent cash flow for property investors.
Maintenance and upkeep costs
As a rental property owner, you’ll be responsible for the maintenance and upkeep of the property. The range of tasks you need to oversee vastly differs between a house and an apartment.
Why choose an apartment?
Unlike houses, maintenance, insurance and upkeep costs are shared in apartments among all the owners in the form of a strata title. A body corporate manages and maintains the common areas in strata-titled properties, and charges body corporate fees.
But not all costs are covered by the body corporate, you'll still have to pay your own contents insurance, council rates, repairs and maintenance to your individual apartment and utilities.
Why choose a house?
Houses may be more expensive to maintain due to their size and additional insurance costs. But when you own a house, you have more freedom to renovate and upgrade the property as you see fit. You could upgrade fixtures and amenities that could help keep maintenance costs down long-term, as well as improve property values.
Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek professional advice tailored to your circumstances before making any financial decisions.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
