20 Jul 2017

Should you Invest in an Apartment or a House?

Many property investors are torn between investing in an apartment or a house. Both options have benefits and drawbacks. Here we examine them for you.

Apartments

Pros:

Apartments are often a better option, or the only option, for first time investors because of their affordability. The median house price in Australia is currently $636,315 while for apartments it is $476,023. Apartments are also easier to let because they tend to appeal to young people who want to be close to the city while houses are in the suburbs. Another advantage of investing in an apartment is that they require less hands on maintenance although you will have to pay a strata levy.

Cons:

An apartment may be cheaper to buy than a free-standing home but the fees of the body corporate can increase over time especially if you have amenities in the building such as a gym, concierge or heated swimming pool.

Another disadvantage is that you don't get any land with an apartment. It is not hard for developers to increase the supply of apartments in your area by building more towers but they cannot increase the supply of land unless you are buying on the fringe of the city. If apartments flood the market where you have bought, it will depress the value of your property. Another disadvantage of an apartment is that you can't make any major improvements beyond refurbishing the interior. 

Houses

Pros:

The big advantage of a house is the fact that it comes with land. Land tends to appreciate over time while physical buildings depreciate unless they have heritage value. This means that freestanding homes on a good block of land are a great option for investors looking for long-term growth. The exception is homes on the outer limits of the city where you could potentially find land being released faster than demand and flooding the market. Buying a house can also mean you have the freedom to do meaningful renovations that can increase the value of the property.

Cons:

If you own a house you are accountable for all maintenance and repairs. If you hire a property manager it costs money, if you do it yourself it costs time. Another con is the much higher cost of buying a house.

Final thoughts

Both apartments and houses have the potential to be profitable investments. Whichever option you choose, it’s important to do your research about the market and get the right home loan to maximise the returns from your investment.