How to decide between investing in a house or unit

If you’re investing in property, especially for the first time, there is no doubt you have considered both housing and unit options.

But how do you make the right choice? The best approach is to ask yourself what your investment objectives are and how many dollars you have to invest. There are distinct differences between housing and unit investments, including required capital, ongoing costs, tenant interest, rental yield and cash flow.

Ask yourself these simple questions to help you make an informed decision:

1.    What are your investment goals?

Generally speaking, the choice between a housing and unit investment can be determined by your investment objective being either short term or long term.

If your investment goals are short-term, units offer higher rental yields, so from a cash flow perspective, you can expect to see a return sooner. When considering between an older unit and new apartment, commonly, older dwellings can offer more value as new apartment amenities such as pools and gyms incur levies. According to June 2016 data from realestate.com.au, annual growth for a 1 bedroom unit in Melbourne is 0.4%.

If your goal is long term, a house will most often deliver greater capital growth due to the fact that housing investments have land value and provide the potential for negative gearing. According to June 2016 data from realestate.com.au, annual growth for a 3 bedroom house in Melbourne is 3.2%.

2.    What is your budget?

We all want to make the most out of our investments, so just like any financial decision, it helps to identify a budget to know what your options are. You don’t want your investment to leave you out of pocket and affect the quality of your life.

For first time investors, units can be a favorable choice as their value allows investors to raise the necessary capital sooner. Houses have a higher entry price point due to land value but deliver significantly higher return long term. According to June 2016 data from realestate.com.au, the medium price for a 1 bedroom unit in Melbourne is $333K and a 3 bedroom house is $870K.

This infographic will show you the distinct variances of price, growth and return between house and unit investments:

3. Can you afford on-going expenses?

Housing investments sustain higher ongoing costs such as rates and land taxes, and while units are also subject to strata fees every quarter and levies for amenities, they are lower than housing fees.

Maintenance costs must also be considered. Investing in a house will generally lead to higher maintenance costs as housing investors hold all responsibility for maintenance and repairs (unless you use a property manager), whereas units and apartments share responsibilities with body corporate, meaning costs and liabilities are reduced.

4. Will you find tenants?

Housing and unit rentals are in demand, and will be for a long time.

To maximize your investment potential, it counts to do your research and invest in a location, and among a demographic where rental demand is high. For example, if a unit or apartment is your choice, investing close to a university and public transport can increase tenant interest. Similarly, if a housing investment is your choice, considering proximity to schools and shopping centers can increase rental demand.
Don’t be afraid to ask questions!

The property investment journey is both rewarding and challenging, and for first-timers, the experience can change the quality of your life forever. Never be afraid to ask questions so you can make the best possible decision to optimize your potential and reach your investment goals.