As National Property Strategists and Buyers Agents – Capital 360 often are asked the age old question – should I buy a house or a unit?
The factors that influence a buyers advocates decision about property type –unit, townhouse or house – are vastly different for an owner occupier versus investors.While an owner occupier might buy a larger standalone dwelling for lifestyle reasons, an investor should always make their decision based on budget, strategy and goals.
If you’re an investor currently trying to make the decision between a unit, townhouse or house, you should start by asking yourself the following question…Am I investing for capital growth or rental returns, and when do I want to see results?
On the whole, Capital 360 national research shows that houses tend to produce a higher level of capital growth, thanks to the larger percentage of land owned. After all, it is the land component of a property which increases in value (the physical building will only depreciate). These high levels of capital growth can take many years to be realised and investors really need to take a long term view to achieve the greatest wealth creation results. However if you buy well and add value, this can bring some earlier, if not immediate gains.
Units tend to bring in a higher rental return due to their more affordable nature and availability close to inner ring CBD locations. Hence, buying a unit can place you in a better ongoing cash flow position as an investor. This also assists on the servicing side of the equation when banks review your financial position at pre approval stage.
Investing in townhouses on the other hand, comes with benefits and drawcards in between that of houses and units. While you may have a larger piece of land and generally more privacy, you’re ultimately still sharing some common walls and services.
In the end however, the choice is yours. Just ensure your choice reflects your short and long term strategies and goals.
Here are some pros and cons on the two most common property types – houses and units – to help you make up your mind
-Commonly cheaper than houses
-Generally higher yield (due to greater demand for smaller households and a smaller initial financial layout)
-Typically lower maintenance requirements
-Most blocks have security and many modern blocks have facilities such as gyms – seek smaller unit blocks with large land content
-Often located within close proximity to inner city locations and in-demand amenities and services
-Strata fees will apply
-It can be more difficult to gain significant capital gains within the first few years of ownership, and therefore
-It may be difficult to refinance to draw equity and reinvest
-Some blocks that have gyms, pools etc. can have substantial levies
-Often located in high density areas
-Larger land content which is great for capital growth – seek larger blocks where possible, in areas with land scarcity
-Historically generally greater long term capital growth prospects
-More lifestyle space (backyards, living rooms etc.)
-Creative control over the entire property, and therefore
-Greater opportunity to add value via renovations (externally as well as internal plus additions)
-Traditionally lower rental yields.
-Not commonly found (or not affordable) within close proximity to inner ring of CBDs
-More maintenance required (which can mean higher ongoing costs)
-Easy to overcapitalise on add value projects
Capital 360’s recommendation is that with the average household size declining to 2.5 persons (and continuing to fall), it is likely that demand for smaller dwellings within close proximity to major capital city CBDs will continue to rise. Focus on picking the high capital growth units and look to increasing rental yield with smart renovations. A company that could be yours best vendor advocate.
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