"Important to any decision, especially when it comes to your investments is to weigh out the pros and cons - because there is no 'perfect' investment. Read more of the well-balanced article from the API." - Matthew Lapish, Senior Investment Analyst
When it comes to deciding on the property in which to invest, there are many choices for property investors and whether you choose a house or apartment will really depend on what you are trying to achieve in the long term.
Both have a lot to offer and both have their disadvantages.
There are a lot of factors to consider particularly if you are restricted with budget, because generally speaking, apartments are usually the cheaper option over houses.
There is, however, a lot more to investing than buying an apartment just because you can afford one.
An important consideration is to buy the right type of property (house or apartment) for the demographic of the area.
It is not a question on which is better, but rather to ensure you are buying the right type of property for that area.
For example, you wouldn’t want to by a small apartment in an area that is demographically for families who prefer houses with three or more bedrooms.
The apartment would be a better choice in an area that is close to universities or the city where young singles, students or city workers might prefer to live, being close to the hustle and bustle.
Considering closely the type of person who will be living in your property and what they would want, will make sure your property is in demand and a fruitful investment.
Let’s delve deeper into the considerations of each type:
When buying an apartment, the main consideration would be that they are typically more affordable, located close to amenities, require less maintenance, and are a good source of passive income because they have higher rental yields and this cashflow is attractive for a lot of investors.
Often there are building amenities available such as swimming pools and gardens, playgrounds, barbecue area, and sometimes gyms, tennis courts and saunas.
Be aware that the more facilities on offer, the higher the strata fees will likely be.
Apartments also come with an inherent level of security for your investment, being in a building that has swipe passes and access codes to enter and there are usually security cameras in common areas as well.
One of the biggest negatives of owning an apartment is that you have less control over your investment because you (as the owner) and your tenant will need to abide by the strata rules and by-laws.
The laws restrict what you can and can’t do to your property and any alterations will need to go through the strata committee for approval.
There are also costly ongoing strata fees paid quarterly to cover building insurance, maintenance of the common areas, and contributions into the sinking fund, which covers unexpected costs for the building.
If you are looking to purchase an investment property and do not have ability to purchase a house, an apartment might be a good choice for you to get a foothold on the property ladder.
Buying a house for an investment means buying a larger property that will sit on its own land.
It is the land that is going drive the capital growth of the property to generate better returns over the long term.
A house will be a more flexible investment, and if you buy the right property you might get the chance to create your own equity through a renovation or development.
Keep in mind that owning a house is going to be more costly than an apartment because of the repairs and maintenance as well as insurance costs, which is why houses are more typically negatively geared in the short term but you will get the long term gain from the capital growth.
When considering your options while wearing an investor’s cap, it is important to have a clear strategy in mind and consider whether you are seeking an investment that will have good long term capital growth or excellent rental yields.
Rental yields are usually better with apartments because the maintenance and holding costs are less and they are usually situated close to amenities.
If it is investment-grade it will be in demand and attract a premium rent.
In comparison, houses on land that will appreciate will likely reap more growth in the long term.
Source: Australian Property Investor
Edge, L. (2024, March 28). Property investment showdown: Houses versus apartments. Australian Property Investor Magazine. https://www.apimagazine.com.au/news/article/property-investment-showdown-houses-versus-apartments