Investing in real estate is something many Australians delve into to make income, whether to supplement their current yearly income or as an alternative to the regular 9 to 5 grind.
When it comes to investing in residential property, there can be some debate and consideration over purchasing an apartment unit or a free-standing house. Is one more valuable than the other to investors? Well, when it comes to value, it is best to consult with a residential valuation service in Adelaide for precise details of your potential investments.
Here in this blog, we will cover the advantages of investing in houses vs the benefits of owning an apartment as a rental property.
Investing in houses
For most, there is no question whatsoever on the kind of residential property to invest in as they are already familiar with living in and buying a house. But this is relative to the location of the investor and their experience.
For those who are unsure which is the right investment for them, here are some pros and cons of investing in a house to help you weigh your options.
Pros
- Capital growth: In general, houses have a greater potential for long-term capital growth. This is tied to the fact that owning a house comes with owning a substantial piece of land. Land value tends to appreciate over time contributing to capital growth.
- Rental income: Houses make for better long-term homes and as such, attract long-term tenants. This means that the rental income of such an investment is more consistent. Depending on the location of the property and the facilities nearby, you may have a family or a settled couple who are happy to stay and better maintain your property for a long-time.
- Potential to subdivide: Subdivisions are popular with investors as it has the potential to multiply your income and return on investment significantly. Because of the space and the amount of land available with the purchase of a house, you could potentially double your rental income by adding a granny flat or creating multiple units on a single property.
- Freedom to renovate: If you are the type of investor that is happy to be more hands-on or prefers to have some control over the general upkeep, layout, design etc. of your property, then a house will offer more freedom to renovate or improve the property as you see fit.
- Tenants can enjoy more privacy and spaceDepending on the location, availability and values of nearby apartments, your tenants may be happy with the amount of privacy and space that is provided by a house. This could potentially increase the demand giving you more options to find a good-quality tenant.
Cons
- Cost: Buying a house requires more of an upfront payment in terms of a deposit and the overall costs of mortgage repayments and interest rates. You will need to secure more finances ahead of investing in a house for an investment property compared to what you require to purchase an apartment unit.
- Maintenance: Because of the size of the structure and the land it occupies, there is more to maintain with a free-standing house. As the landlord of a house, you will be responsible for such things as the appliances, fences, car space/garage, shed and more. This can be quite expensive and time-consuming compared to the maintenance of a single unit.
Investing in apartments
Considering the expenses that are associated with purchasing and maintaining a house, investing in an apartment unit seems to be the more attractive option. Let’s explore the good and the bad.
Pros
- Lower entry cost: Upfront is the initial cost of investing in an apartment that is much lower than a house and, therefore, makes this option great for first-time investors who are looking to dip their toe in landlord waters and start building their portfolio.
- Shared costs: As an apartment is a single unit of a larger structure, the costs of building maintenance, insurance, security etc. are shared amongst the owners. This again makes it an easier investment for the landlord novice.
- Easier maintenance: Apartments are smaller spaces and have fewer features that would need to be attended to. Such things as pools and gardens would be the responsibility of the body corporate, all you will need to worry about is the general condition and upkeep of the apartment alone.
- Diversify your portfolio: Whether this is your first or second investment, chances are you will likely invest in a house at some stage and therefore investing in an apartment will diversify your residential property portfolio.
- Location: Apartments are generally located within or close to a CBD or other major hub. They are easy to integrate into a busy city centre which makes this sort of residence attractive to those who like to be within walking distance of such things as transport, restaurants, universities, offices, entertainment, cafés and more. This will likely attract a variety of tenants.
Cons
- Strata/body corporate fees: Apartments are part of a larger strata structure which is managed by a body. As the owner of a strata unit, you are obligated to contribute to the building’s maintenance, insurance, land tax etc. by paying strata fees.
- Lender requirements: Certain lenders may have a strict list of features a unit should have before they can approve of a loan to finance an apartment investment. This can include such things as meeting a size (square metre) criteria, having a separate bedroom and bathroom (no studio apartments or dorm-style shared facilities) and a kitchen. Know ahead of time what lenders in your area prefer an apartment to have to finance an investment.
Seek guidance from a property professional
If you have one or more properties in mind to invest in, it is a good idea to seek the service of a residential property valuer. By using the direct comparison approach and other meticulous methods, a valuer can help you:
- Compare an investment to others in the local market
- Secure a loan and adequate insurance
- Pay no more than necessary in taxes
- Set a fair rent according to your property’s value
- Discover any hidden benefits or risks
- Forecast potential return of investment
Get advice from a real estate expert by contacting your local property valuer today.